The definition of a Best and Final Offer in real estate is a buyer’s last and highest offer. A Best and Final is typical in response to a bidding war. A seller who has received several offers will usually ask top bidders to submit a Best and Final Offer. This type of offer induces STRESS (!) for both the buyer and their agent. As an agent, I will do an analysis of the property to determine fair market value. But…
In a bidding war, fair market value can go out the window. The ultimate price is determined by the person with the best potential to pay for the property and actually close the deal…
The buyer with the highest offer does not necessarily mean the best offer.
In the past six months, prices in the under-one-million-dollar-market have sky-rocketed to the point of crazy. When I have a buyer in a bidding war situation and there are no comps to justify an inflated price…I kind of cringe. Usually I review the comps and then speak frankly about the possibility of overpaying. My advice is to offer a number that means you don’t care if you don’t get the house for only $1.00 more, either because you can’t afford to pay more or you can’t justify paying more. That number must come from the buyer – agents cannot change a buyer’s finances or their view of a dream home. Yes, listing agents like a bidding war but it can also evoke sadness. There are so many young families trying to move into Newton and they simply cannot afford it. My job as a listing agent is to close the deal at the highest price. The “close the deal” is key.
I recently listed a house below one million dollars. The sellers did everything we asked of them: de-cluttered, put items in storage, went away for the weekend with their two young children to accommodate showings. We had an open house Saturday and Sunday with several private showings before and after the weekend. Offers were due by 4PM on Monday.
Realtors always know when the price is right; your phone rings (constantly)! We had hundreds of prospective buyers view the home. Monday afternoon rolled around and we had six offers – I actually expected more, but I should note the amount of buyer fatigue we heard…
“I only have 20% to put down.”
“I was out-bid on 3 other properties!”
“I can’t waive my mortgage contingency, should I give up my inspection contingency?”
*No, never waive your inspection contingency unless you have a boatload of money.
We reviewed the offers and presented them to the seller. Basically you lay out the offers on the dining room table: this is the lowest, the middle and the highest. But wait – the highest offer doesn’t have great financing but the next highest offer has incredible financing!? It is easy to eliminate the low offers, not so easy to eliminate the fabulous financing offers. Closing dates, dates for inspections all come into play. In this particular case the highest offer also had the best financing. Lots of money to put down and a considerable offer amount above the next competing bid. Shortly after we left we had the unpleasant job of calling the agents or buyers themselves to relay the bad news.
I’ve had much experience with buyers who make offers without an agent. Unfortunately, this can be a costly mistake. Crazy high offers with 500 contingencies. Low offers that would have made no sense five years ago. And of course, the Ask, “I’m not using an agent so the seller only has to pay 1/2 the commission.” (Sigh. That’s a post for another day.) If you’re in a multiple bid situation, remember that if you give up your mortgage contingency and the house does not appraise, you either have to come up with extra cash or forfeit your P&S deposit. Have a very candid conversation with your mortgage broker before you make that decision.
In the end, we did not go back for the Best and Final on this house. The best offer was more than the seller had dreamed of, the financing was perfect, the buyers were seasoned and seemed reasonable while viewing the house. We felt that these were the right buyers. If we went back for Best and Final in this particular case, we could have risked annoying the buyer who stepped up to the plate from the beginning and feels he is not treated fairly and decides to walk. Or you can have a buyer increase their offer in the heat of the moment only to wake up with buyer’s remorse. They may regret their decision and then try to “renegotiate” the price based on some little inspection issue. The goal is getting the seller to the closing table. Most often, the seller is purchasing another home and the timing of this closing must coincide with the closing of the new home.
Buyers — put your best foot forward, DON’T panic, and let the chips fall where they may. There will be another house for you. Sellers — DON’T get greedy (know it can be tempting…). The most successful deals happen when each party leaves a little something on the table for the other guy.