A Complete Guide To “Multiple Offers” Situation: Counteroffer, Highest, Best and Final Offers Discussed

Multiple Offer

Imagine this.

You are a home seller who is moving into a new house in a couple of weeks. So obviously, you are looking to sell your current house; pertaining to that you do a little bit of renovation to your current house to make it ready for sale. 

Fortuitously, it’s a seller’s market as the inventory is low and buyers are pouring in with their offers to get their hands on your house. Some of them are below your listing price, some of them are above, some have better terms and quicker closing dates, while some have higher earnest money.

Yes, we understand that you are perplexed about which of these multiple offers should you go for? 

What to do?

If you have a listing agent, they will surely suggest you go with the classic “highest and best offer” strategy. But that might lead to a bidding war and you also have to calculate the risk of some buyers backing out as they do not wish to contend this bidding bout! 

So, should you make a counteroffer to the low-price bidders or should you go for the agent-suggested “highest and best offer” strategy? But what about your moving-out plans? You need to close the deal quickly. So, should you choose a quicker “highest, best, and final offer” strategy? 

In this comprehensive guide, we will discuss in detail about counteroffer on house, highest, best, and final offer tactics and how these tactics affect both the parties i.e. seller and buyer. We have also discussed a few crucial points that every seller and buyer must know if they ever find themselves in multiple offers situations.

In case you don’t have time to read this complete blog, watch this quick video.


What is the “Highest and Best Offer” Tactic and How it Works?

2020 was an unprecedented year and it forced many of us to change the way we live and especially, the way we work. Since many people are working from home currently this aspect has also impacted buyers’ choices. Around 59% of potential buyers came in with a demand for work-from features like a finished basement, or an extra room to set up their home office.

So, if your house has any of those features then definitely your house is a hot property at the moment. And then you are surely going to encounter a multiple offer situation and it is equally sure that your agent is going to suggest you go with the “highest and best offer” tactic instead of counteroffering to low-price buyers.

Under this strategy, you tell the buyers to submit their shiniest offers by a pre-determined deadline. For example, you might say, “SEND IN YOUR HIGHEST AND BEST OFFER BY THURSDAY 6 PM”. Such a tactic will instigate the buyer to either polish their previous offer or even raise their last offer because this tactic will tell the buyers that they are not the only one interested in your property.

Now, take this as a preface, “highest” doesn’t always mean “best”. You might feel excited to see an offer price that exceeds your asking price by $10,000 and it might tempt you to accept that “highest offer” only to find out that they have included ridiculous “contingencies” in their purchase agreement. On the other hand, the best offers might not be the highest ones in terms of price but they have better terms and conditions like no contingencies, quick closing date, high earnest money deposit, and some other benefits as well.  

Wait, what are contingencies? And why should their presence in your purchase agreement worry you?

Well, let’s get them out of the way first, shall we?

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What Are Contingencies and How They Can Affect Your Home Selling Journey?

Contingencies, back in the 80s, were also referred to as “weasel clauses” because they basically allowed the buyer to back out from the deal even after the closing. There are various contingency clauses that have always been popular and used by buyers to call off the deal even when the sellers thought their house was good and sold. 

In fact, among house sales that were executed as recently as February 2020, 71% of deals had contracts with contingencies in them. Some of the most common were home inspection (53%), home appraisal (44%), and home financing (43%).

Here’s a quick glance at the most common contingencies that inhibits your house selling journey and might even terminate the deal.

Types of ContingenciesValid forFollowsHow to get rid of them?
Home Inspection7-10 daysOften firsti. Pre-listing inspection
Home Appraisal21 daysHome Inspectioni. Sell to a cash buyer
ii. Negotiate it out (in case of seller’s market)
Home Financing30-60 daysIn conjunction with appraisali. Sell to a cash buyer
ii. Sell to a pre-approved buyer
Home Sale ContingencyVariableIndependenti. Ask them to remove it
ii. Ask them to apply for a bridge loan

Let’s discuss a little more about each contingency.

  • Home Inspection: This contingency requests for a professional home inspector to assess and document the property for any health, mechanical, or safety risks. This contingency lasts for 7-10 days after the closing and then it expires. During the inspection stage, the buyer can call the deal off for any – reasonable or unreasonable – cause, such as “the bus stop is too far away”.
    You can avoid this contingency by doing a pre-listing inspection yourself. You need to submit the inspection report to the buyer at the time of showing. This might encourage the buyer to not include a home inspection contingency in the contract. However, buyers might not put faith in an inspection done by the seller and would still request for a home inspection themselves. So, you can expect some disagreement here.
  • Home Appraisal: This contingency is valid for 21 days after signing the papers and allows the buyer to call the deal off if the after-sale valuation of the property is lesser than the purchase price. According to the home appraisal contingency, the after-sale valuation of the house must match or exceed the purchase price, if it doesn’t, the buyer and seller will have to discuss who will cover the discrepancy in the loan offered by the lender. If the two parties cannot concur then the buyer has the freedom to cancel the deal.
    You can avoid falling prey to this contingency in two ways:
    (a.) sell your house to a cash buyer. As they are not dealing with a bank for a loan, an appraisal is less likely to happen or interfere with the sale. If you receive multiple offers and one of them is all cash then you can choose that buyer over others, just check for the proof of funds before you finalize the deal.
    (b.) You can negotiate the deal. If it’s a seller’s market then a buyer can write off this contingency completely while making their highest and best offer. Even if the house is appraised at a lower value, the buyer will cover it up from their own pocket. Again, check for the proof of funds!
  • Home Financing Contingency: This contingency, in simple words, allows the buyer to abandon the deal if they are not able to get a bank loan within 30-60 days from the day of closing, scot-free!
    This is one of the riskiest contingencies to have in your purchase agreement and can falter your home selling process even when the deal was completed. To protect yourself from this contingency, you can sell your home to a cash buyer only or sell it to a buyer who has a pre-approval from the lender.
    If it’s a seller’s market then it is even better for you as the buyer might completely waive off this contingency as their counteroffer on the house, sometimes even after they had provided their highest and best offer.
  • Home Sale Contingency: Some buyers wish to sell their current house before they buy a new one, maybe because they cannot afford two mortgages, or maybe because they want to use their selling proceeds as a down payment for their new house. Whatever the reason, this is one of the riskiest contingencies to have on the contract. The buyer might not be able to sell off his house for any reason – they didn’t price it right, they didn’t market it effectively, their property requires a lot of repairs – and until they sell their house, they won’t be able to buy yours.
    How to protect yourself from this? Ask the buyer to remove this contingency or you can ask them to find an alternative solution like a bridge loan.

However, keep in mind that even if they remove these contingencies to make their highest and best offer that doesn’t mean they are not entitled to conduct an inspection or appraisal on their own. Removal of these contingencies simply means that you won’t be left hanging by the seller when you thought that your house was good and sold. 

Why Should a Seller Use the “Highest and Best Offer” Tactic?

Best Offer

Now coming back to our main topic of discussion.

When you have multiple offers, the highest and best offer strategy can be extremely beneficial for the seller. If you are selling a house and your agent has suggested you implement this tactic then it’d benefit you in several different ways like:

Better quality offers

Once the sellers ask for the highest and best offers the buyers have the tendency to put forward a higher offer than their previous one and also a “best offer” by waiving off the contingencies or conditions to appear genuinely interested in the property. The buyers can even put in earnest money deposits to tilt the scale in their favor. 

Expediting the selling process

When the highest and best offer tactic converts to the highest, best, and final offer tactic, you – as a seller – can quicken the selling process. In this method, you don’t just tell buyers that you want the highest and best offer, but you also warn them that this is the final round of putting forward an offer. The offer chosen in this round will be final. 

This can save you a humongous amount of time by not getting into negotiating offers and counteroffers on the house.

Does “Highest, Best and Final Offer” Strategy Always Work?

Pertaining to what we discussed above, a highest best, and final offer scheme will work wonders if timed right – it might make your house sell for higher than you priced it for, and a quick closure is also guaranteed. However, if not timed right, this strategy might be equally ineffective as it is effective.

Before you have multiple offers

Some real estate agents have noted that people put up the highest and best on the very first day they list their property. It might be possible that the seller wants to sell their property quickly but doing that on the very first day or when you are not even really in a multiple offer situation, can have some serious drawbacks.

Your property might come out as shady as a buyer might ponder why the seller wants to sell so quickly. On the other hand, the seller might also be interpreted as arrogant.

Overestimation of your property or market

Even if you are selling your house while the market is hot, you should not do the unethical practice of trying to squeeze money from the buyer. You should not try to raise your asking price or go for the highest and best when your asking price is already matched or exceeded. This might lead to your property being appraised under contract price and this will lead to prolonged negotiation or even worse, the buyer cancels the deal. Remember, the offer is not the final step, sealing the deal is.

“Highest, Best and Final Offer” Process in Practice

highest and best offer

Ideally, the aforementioned offer strategy works like this:

  1. Seller lists the house with the help of a listing agent with an asking price of $500,000
  2. The seller gets three offers but none are impressive
  3. Agent declares multiple offer situations and suggests going for the highest, best, and final offer strategy
  4. Buyers come in with their shiniest offers, for example: buyer A with $500,000, buyer B with $510,000, and buyer C with $520,000

(let’s assume they all had the same terms and conditions like contingencies waived off, quick closing date, pre-approved financing, etc.)

  1. The seller chooses the highest one i.e. buyer C and the agent tells the other buyers that a buyer has been chosen
  2. Now, buyer and seller move ahead with the contract and the seller starts inspecting the house before moving in
  3. The rest of the offers become “backup offers” in case, the deal with the current buyer fails

This is how, ideally, the highest, best, and final offer process should work.

But, let’s say buyer B misjudged the situation and thought nobody would offer more than his bid. B really loves the house and is not ready to give up. So, he moves up from his previous offer price to $530,000, which he could have done in the first place but chose not to because he miscalculated the situation. Buyer B puts forward his new offer to the seller’s agent.

Now, the seller’s listing agent has a legal responsibility to present his client with ALL the offers. As the agent tells the seller about B’s offer, it is likely that the seller will turn their back on buyer C and terminate the deal to resign a new deal with buyer B. Afterall, who says no to extra money, right?!

Now, buyer C is surely going to be disappointed to know this and they have all the right to feel betrayed by the seller but they can’t do anything about it.

Such scenarios are very common in the real estate industry and make it difficult – especially for the agents – to maintain the integrity of the highest, best, and FINAL strategy as some buyers just don’t understand the final part of the process.

What is the solution to this?

As a seller, you and your agent, can maintain the integrity of the tactic by going with “NOT Final” strategy.

This way, you will not only get highest and best offer from the buyers but the losing bidders will get another shot to improve their offers. Also, with this tactic, there are high chances that you will get the right buyer. By “right” buyer we mean the proper right one – the one whose offer has the highest price and the best terms. Something which would not have been possible with the highest, best, and final strategy.

Conclusion

As a seller, in case of multiple offers, going with the highest, best, and final offer strategy cannot just enable you to complete the process speedily but also can let you sell your home for a higher price than your asking price. It can also give you a “best deal” with no stringent conditions or a quicker closing date.

But just remember, the strategy is highest and best, not just highest. As a seller, you should not be fooled with high prices but should always go for a deal that closes on time with fewer obligations on your side.

As a buyer, all you need to do is stay positive. Sometimes you might go all-in with your absolute best offer but you still don’t get the house, and that’s okay. You can make your best offer on another house that will be just as good as the one you lost. Do not feel down and let the emotions take over, stay calm, and move ahead to make an offer on another house. Enjoy the homebuying process.

Frequently Asked Questions

Can you counter highest and best offer?

Yes, the listing realtor can counter the “highest and best” offer, after you review them. Sellers can choose from multiple offers that have come from the buyer's side.

What happens when there are 2 offers on a house?

If the seller has multiple offers, he/she typically goes with one of three actions: take on the most suitable offer, counters every offers to give everybody a chance to come back with a stronger bid in an attempt to get the best price and terms, or counters the offer closest to the price and terms the seller’s expecting.

Can you put an offer on a house that already has an offer?

Yes you can, provided the enacted contract has not been signed. You can even accept the offer, or ask the seller if they can have you as a back up option.

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