13 min read Jul 22, 2022

Multiple Offer Situations: Is “Highest and Best Offer” A Smart Move?

Highest-And-Best-Offer-Sellers-Guide

👉 Jump To: Real Estate Counter Offer | Highest and Best Offer Real Estate | Contingencies in Multiple Offer Situation | Received Multiple Offers? Here’s What You Should Do | Final Word | Frequently Asked Questions

The U.S housing market is showing signs of cooling down. Even with high-interest rates and new inventories, many buyers are bidding for your house. Should you counteroffer on the house or go with the “highest and best”?

You might as well want to consider factors like waived contingencies, a flexible closing date and higher earnest money for a successful closing.

Read on to get an idea of how to make the best move depending on the priorities of your sale.

Counter Offer: Everything You Need To Know

Real estate transactions are often preceded by a series of negotiations. These negotiations are subsequently driven by what is called a Counter Offer.

What is a Real Estate Counter Offer?

Counteroffers are the return offers made by the seller in response to the buyer’s initial bid. When a seller receives an offer, they have the option to accept, reject, or counter it.

If the seller makes a counteroffer, the buyer has the option of reconsidering too. Counteroffers are crucial for sellers to meet their goals.

If you have a listing agent, they will suggest you go with the classic “highest and best offer” strategy. The result is a bidding war. However, there is a possibility of buyers backing out because they do not want to compete in this bidding war!

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When Should I Counter an Offer?

Home sellers typically counter an offer when they are not happy with the buyer’s initial bid.

A counter offer can also suggest the seller has accepted it conditioned to some changes. These changes may include the price, removal of contingencies, and closing date among others.

Buyers and sellers can both benefit from the counteroffer. Sellers can directly communicate the offer terms to their agent.

In short, you can counter an offer if you want changes with regard to

  • Sale Price
  • Closing Date
  • Contingencies

✍️ Note: When you counter an offer, the original one becomes void. Additionally, depending on your state laws, you can only be involved in one sale negotiation at a time.

Counter Offer Real Estate: Benefits and Drawbacks

Benefits

  • Better Price: Your home sells for a better price if your counter offer is accepted. You can walk out with a good profit!
  • Closing Date: You may end up with a flexible closing date with no contingencies.
  • Review the terms of the deal: A counteroffer might help revisit the terms of the agreement, should the terms change.

Drawbacks

  • Unsuccessful Transaction: You might lose the sale of your home.
  • Unexpected Outcome: The terms of the counteroffer may not always be what you had expected. In other words, counteroffers may come with worse terms than the original offer.
  • Buyers’ Exit: There is a possibility that buyers can always back out of the agreement.

Highest and Best Offer in Real Estate

There are many different approaches to negotiating multiple offers on a house. The term “highest and best offer” is used by listing agents to inform buyers that there are multiple offers on a property.

This way buyers are encouraged to update their terms and offers.

What does “Highest and Best Offer” Mean?

A seller uses the “highest and best” offer strategy when they have received multiple offers on the home. Thereafter, he asks all his prospective buyers to submit their offers within a specific time frame. The seller then evaluates all the offers and picks the best and final offer.

For example, you could create a sense of urgency with, “SEND IN YOUR HIGHEST AND BEST OFFER BY THURSDAY 6 PM”. This strategy informs the buyers that they are not the only ones interested in your property. The buyer will either polish their prior offer or perhaps raise their earlier bid.

However, the estimation does not end here. When selling a house, it’s not always the highest and best bid that you would settle for. You can definitely go with the second-best if it comes with fewer contingencies or flexible closing date.

Houzeo Can Help You Make the “Highest and Best Offer”: Here’s How

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How Does Highest and Best Offer Strategy Work?

Ideally, the aforementioned multiple offer strategy works like this.

#Process
1.The seller lists the house with the help of a listing agent with an asking price, say $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.
5.The seller chooses the highest one i.e. buyer C and the agent informs the other buyers that a buyer has been chosen.
6.Now, the buyer and seller move ahead with the contract and the buyer starts inspecting the house before proceeding further.
7.The rest of the offers become “backup offers” in case, the deal with the current buyer fails.

A Seller’s Motive Behind “Highest and Best” Strategy

A seller might want to consider the “highest and best” for the following reasons:

  • Faster Sale: When a seller wants to skip the initial rounds of discussion and directly move to the negotiations, they may opt for the highest and best offer tactic.
  • Narrow Down Competitive Offers: Some buyers may come up with a favorable price while others may offer more flexibility. This strategy certainly helps a seller to narrow down the list of competitive buyers.
  • Best Price: It has the potential to stir up wars and a bidding war among top buyers. A seller can expect appealing offers if they decide to go with this tactic.

» How To Sell Your House Without A Realtor: A Comprehensive Guide

When Should I Avoid the “Highest and Best Offer” Tactic?

Now, as a disclaimer, “highest” does not always imply “best”.

You might be tempted to accept the “highest offer” after seeing an offer price that exceeds your asking price. only to discover that they have put ludicrous “contingencies” in their purchase agreement.

The best offer is not necessarily the highest one.

An offer that is better in terms of real estate circumstances may qualify as the best one for you. It might come with no contingencies, a rapid closing date, a large earnest money deposit, and other advantages.

So, what does contingent mean on a house? And why should their presence in your purchase agreement worry you?

» Selling a House: A Comprehensive Guide for Home Sellers

What are Contingencies and How They Can Affect Your Home Selling Journey

Contingencies are often called dubbed “weasel clauses” as they allow the buyer to bail out of the deal even after it is completed.

Various contingency clauses have long been popular, and buyers have used them to back out of deals even when the sellers believed their home was sold.

In fact, 71% of the real estate deals closed in February 2020 had contingencies in them. Some of the most common was home inspection (53%), home appraisal (44%), and home financing (43%).

Contingencies in Real Estate

Let’s discuss a little more about each contingency.

🏡 Home Inspection

A professional home inspector assesses and documents the property for any health, mechanical, or safety risks. During this time, the buyer can call the deal off for any reason.

✍️ Note: To avoid this, you can submit a pre-listing inspection report at the time of showing. This might encourage the buyer to not include a home inspection contingency in the contract.

📅 Home Appraisal

This contingency is valid for 21 days after the deal is closed. Apparently, the buyer can 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.

✍️ Note: If this is not the situation, the buyer and seller will have to discuss who eventually would cover the discrepancy in the loan offered by the lender. If the two parties cannot concur, the buyer has the freedom to cancel the deal.

» How to Prepare for Home Appraisal: Know What Appraisers Look For in Your Property

💰 Home Financing Contingency

This contingency 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.

This is one of the high-risk contingencies to have in your purchase agreement because it can falter your home selling process even when the deal is completed.

✍️ Note: To avoid this contingency, you can sell your home to companies that buy houses for cash or sell it to a buyer who has a pre-approved mortgage loan.

Home Sale Contingency

Some buyers wish to sell their current house before they buy a new one. Reasons could include not being able to 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 too is a tricky contingency to have on the contract. If the buyer is not able to sell off his house for any reason, they won’t be able to buy yours.

✍️ Note: An alternative solution here would be to ask the buyer to bridge a loan. However, keep in mind that they are still entitled to conduct an inspection or appraisal on their own.

Does the “Highest and Best Offer” Strategy Always Work?

On what we discussed above, a highest and best 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.

The “highest and best offer” strategy might be ineffective in the following cases:

No Multiple Offer Situation

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 is up for a quick sale. But doing that on the very first day without a multiple offer situation can have some serious drawbacks.

Overestimation of your Property or Market

Even if the market is hot, you should not engage in the unethical behavior of trying to extort money from the buyer.

For instance, if your property’s estimated value is matched or exceeded, refrain from making the “highest and best” move.

This could result in your property being evaluated for less than the contract price. Or even worse, the buyer can cancel the sale. Remember that making an offer is not the final step; closing the deal is.

🏠 Compare Multiple Offers on Houzeo!

  • Houzeo’s offer tab allows you to evaluate each offer on its own merits, upload buyer prequalification letters, earnest money deposits, and contingencies.
  • This allows you to determine which offer is best for you.
  • You might choose to reply to all open offers by telling interested parties to submit their “highest and best offer”.

Introducing the Houzeo Mobile App!

  • View your listing
  • Manage your showings online
  • Review and compare offers
  • Counter an offer
  • NEW! Buyers can now search your property and save it in “Favorites”

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So What is the Final Offer?

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

This way, you will not only get the 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 one whose offer has the highest price and the best terms.

Received Multiple Offers? Here’s What You Should Do

Receiving multiple offers on a house is always a good indication, especially in this housing market. Because multiple offers mean a higher selling price.

While sites like Zillow, Houzeo, and Redfin have a simplified review process for multiple bids, other FSBO platforms will nonetheless require a few extra steps for assistance.

StepsDescription
💻 Read the termsAn initial offer will always include the terms of countering. They could be any contingencies, pre-approval, flexible closing dates, earnest money, mortgage lender status, escalation clause etc.
🌍 Understanding your local marketThe local market has a significant impact on how you manage offers. For example, if income levels in your area are low, financial contingencies or pre-approvals will make several offers and obtaining a competitive price for your home extremely difficult.
👨‍⚖️ Negotiation tacticsAs a seller, you will always have the upper hand in counter offers. Use this to remove contingencies or reduce the closing date.
📝Prioritize your objectivesSet the terms of the sale and prioritize your objectives. Whether it's getting the best price possible, an instant cash offer, a quick closing, or skipping inspection. Handling multiple offers will be a piece of cake this way.
    💡 NOTE: An escalation clause or escalator should only be used when you are confident about multiple offers. This way the maximum purchase price will be predetermined

Tips For Handling Multiple Offers On A House

Here are some simple tips to help you handle multiple offers on your house:

  • Be Clear on What You Want: As a seller, be clear on what you want from the deal. Is it only the monetary profit you care about or you do want to take other factors into consideration? In either case, be careful about what you are exactly looking for.
  • Hire a Good Agent: Hire a real estate agent who has experience dealing with multiple offers and has the system to manage them for you. Besides, he needs to be honest and responsive to you and the buyers as well.
  • Prepare Your Marketing Strategy: The right agent will help you prep your home for staging and marketing so that it captures the attention of more potential buyers.
  • Be Responsive: Make sure you or your agent respond to the offers quickly ensuring you do not miss out on competitive buyers. But remember, you or your agent are not obliged to tell the other buyers about the other offers on your plate.
  • Trust Your Instinct: As a seller, evaluate the integrity of the offer as well as the integrity of the buyer or the buyer’s agent because choosing the right buyer often comes down to your intuition.

Do Realtors Lie About Other Offers?

A broker cannot conceal information about offers on a property, according to the NAR Code of Ethics.

However, there are a few real estate brokers that will lie about an offer, lie by omission, or lie by misleading you.

A seller could always counteroffer or put in an escalation clause requiring them to present all bids outright and allowing the buyer to negotiate directly with the seller.

Final Word

In the event of multiple offers, using the highest, best, and final offer approach as a seller will allow you to conclude the process quickly. It can also provide you with the “best bargain” with no strings attached or faster closing date.

The strategy is highest and best, not just highest. As a seller, you should not be fooled by high prices. Rather, go for a deal closed on time with fewer obligations on your side.

Frequently Asked Questions

Can a seller counter highest and best offer?

Yes, the seller can counter highest and best offer during the negotiation process.

What happens when there are 2 offers on a house?

If the seller has multiple offers, they can do the following:
1. They can accept the most suitable offer
2. They can counter offers to give everybody a chance to come back with a stronger bid
3. They can counter the offer closest to the price and terms they seek

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.

Should a seller always take the highest offer?

No, each seller has their own objective, time frame, and terms. They can only accept a final offer after analyzing all of the restrictions for several bids and terms that appeal to their selling goals.

Can you ask what is the highest offer is on a house?

You can receive many offers as a seller at the same time. In many states, the agent is required to inform buyers of every offer the seller gets; however, this may not always include the highest and best offer.

Can seller back out of accepted offer?

Yes. The purchase agreement will remain void if there are contingencies in place or if both parties have not signed it. A seller can back out of the offer legally at any time during the negotiation.

How many backup offers can a seller accept?

A seller can accept several backup offers while they are under contract just in case the primary buyer falls through.

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