Highest and best offer: What buyers should know

If you’re shopping for a home in a competitive market, one way to stand out is to submit a highest-and-best offer. A highest and best offer attempts to stand out from other bids by offering a competitive price and favorable terms for the seller, such as a flexible closing or move-in date. Learn more about how highest and best offers differ from best and final offers, which offer would be the most appealing to a seller, how to submit your highest and best offer, and what happens next.

What does ‘highest and best’ mean in real estate?

A seller can request your highest and best offer when they receive multiple offers on their home for sale and prefer to avoid negotiating. This means the seller asks you and other bidders to submit your highest possible offer along with your best terms, so they can choose the offer they prefer without further haggling.

Buyers then make an offer, possibly offering more than asking price or waiving contingencies. The seller reviews all offers and selects the best deal, which might not necessarily be the one offering the highest price.

“The term’ highest and best’ in real estate is used when a seller gets flooded with multiple offers on their home, causing the listing agent to set a date and time or deadline so that they can get all offers in for the seller to review,” says Jason Gelios, a REALTOR® in the Detroit area.

Why would sellers ask for the highest and best offer?

There are several reasons a seller may request your highest and best offer. For example, the seller may want to:

• Sell the home quickly
• Sort through multiple offers in a hot market.
• Maximize their profit
• Assess buyers’ commitment.

“This strategy is used by sellers to determine the actual market demand for their real estate,” Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College, says. “It frequently occurs when there are several interested buyers. The seller seeks efficiency, clarity, and the knowledge that they are not wasting money.”

Highest and best offer vs. best and final offer

A buyer’s highest and best offer differs from a best and final offer. The latter is when the seller gives the bidder a final opportunity to submit a bid on a property. A best and final offer focuses on standing out from the competition, while a highest and best offer still leaves room to negotiate house price.

These scenarios are common in a seller’s market, when low supply and high demand make a bidding war more likely.

“In our market, the terms’ best and final offer’ and’ highest and best offer’ are often used interchangeably,” says Laura Cook, a licensed real estate agent with Keller Williams NYC in New York City. “But typically, a highest and best offer is when a seller sets a deadline for all interested buyers to submit their strongest offers in a competitive situation. A best and final offer usually comes up in direct negotiations when one party is signaling that there will be no further countering.”

How to submit your highest and best offer

When a seller asks for your highest and best offer, you typically have one shot at getting the seller’s attention. The following tips can help you outdo the competition and clinch the deal.

1. Work with an experienced real estate agent

A real estate agent can be a vital ally when you’re buying a house. An experienced agent understands the market where you’re buying and can communicate and negotiate with sellers.

An agent can ask the seller or their agent whether they want to close as quickly as possible or prefer a cash offer. If so, your agent can help you make your highest and best offer and present it to the seller in the best possible light.

“Your agent should be able to give a full market analysis to understand where the sale may trade, and guide you on offer price, as that is the first consideration the seller will be making,” Cook says.

2. Get mortgage preapproval

Most buyers need a home loan to finance their purchase. Mortgage preapproval estimates how much your lender expects you to be able to borrow. This initial mortgage approval also shows agents and sellers that you can qualify for financing, which reduces the risk of the deal falling through because you can’t get a mortgage.

“Obtaining mortgage preapproval lowers the seller’s risk of delays and demonstrates financial seriousness,” Shirshikov says.

Carefully assess your finances, explore mortgage options and lenders, and submit a preapproval application. Rocket Mortgage offers a free mortgage calculator to estimate your payments and provides a Verified Approval Letter that qualified borrowers can submit with their offer.

3. Make your offer irresistible

Want to convince the seller to choose you? Make an offer that’s irresistible to the seller without being unaffordable for you. Here are some strategies for sweetening your offer.

Offer an earnest money deposit

Earnest money is an up-front payment applied at closing to the down payment or closing costs. It shows the seller that you are serious about buying the home and that you can afford it.

A typical earnest money deposit is 1% – 3% of the purchase price. Exceeding or even doubling that amount can distinguish you from the competition.

If the sale falls through for a reason not covered by a contingency, the seller typically keeps the earnest money.

Offer concessions

Offering the seller concessions can make your offer more attractive. Examples include:

• Offering to pay the agents’ commission.
• Offering to pay the seller’s real estate attorney fees.
• Offering to pay off the seller’s mortgage, if it’s a reasonable amount.
• Offering to buy the property as-is.

“Concessions are usually something the buyer requests from the seller, but they can also work the other way,” Cook says. “Showing that you are willing to move forward without nickel-and-diming small repairs, for example, can make your offer more attractive to a seller.”

Consider a cash offer

Buying a house with cash may appeal to sellers who want to close quickly and not have to wait for the buyer to qualify for a mortgage. It can be difficult to compete with cash buyers in a hot market.

“Because cash offers lower financing risks for sellers, they frequently win even at marginally lower prices,” Shirshikov says.

Consider a delayed move-in date

You could delay your move-in date a few months if the seller wants more time to move out. The downside is that you may need to find temporary housing until that date.

4. Consider an escalation clause

An escalation clause, sometimes called an escalator, is a provision in a real estate offer that automatically increases your bid if another bidder makes a higher offer. It also specifies the maximum amount you are prepared to pay. This clause can help you stay in the running if another offer comes in for slightly more than yours.

“It’s worth noting that rules on escalation clauses vary by market, and in some states they are not permitted – so you should always check local practices first,” Cook says.

5. Respond as quickly as possible

Sellers prefer responsive buyers who move fast on the deal. As a result, a seller might sour on the offer with the highest price from a buyer who takes too long to reply. In addition, if the seller is unsure which offer they prefer, speedy communication can make their decision easier.

“It’s crucial to react promptly. Hesitancy and lack of credibility can be conveyed by your delayed responses,” Shirshikov says.

What happens after submitting the offer?

It’s important to know what to expect after the seller receives your offer, including what happens if the seller accepts, rejects, or makes a real estate counteroffer.

“After offers are received, the seller and their agent evaluate them in light of the specified factors: timing, risk, price, and terms,” Shirshikov says. “If the terms are close but unsatisfactory, they may counter a particularly strong offer, accept yours outright, or – in rare instances – reopen bidding.”

Waiting for the seller’s response can be stressful, but it’s important to keep your emotions in check during this phase.

Worst-case scenario? It may be better to back out of a house offer rather than remain in a bidding war and risk overpaying for a property.

The bottom line: Your highest and best offer can help you win the home

Your highest and best offer means putting your best foot forward. Today’s real estate market pressures purchasers to distinguish themselves from dozens of rivals. Because sellers usually receive multiple offers on their home, they may strongly consider the highest and best offer to weed out any buyers who aren’t serious or don’t have the necessary financing backing the offer. That’s why you should gather as much information as possible, get your financing in order, and consult closely with your real estate agent to make your offer more appealing to the buyer.

If you’re ready to buy a home, you can start the mortgage application process with Rocket Mortgage^®.