Highest And Best Offer In Real Estate, Explained
Ashley Kilroy6-minute read
March 01, 2023
If you’re house-hunting and find a home you’d like to pounce on, it’s crucial to make an impression with the seller. Because the average seller is fielding offers from several buyers at once, your highest and best offer is how to get the seller’s attention and get to the closing table. Here’s how to make your offer outperform the competition and get you into the home of your dreams.
What Does ‘Highest And Best’ Mean In Real Estate?
A request for the highest and best offer can occur in real estate when a seller receives multiple offers during the sale of their home. The seller might request interested buyers to submit their highest offer with their best terms, allowing them to choose whichever one they like best without engaging in negotiations.
The request for highest and best offers means the seller sets a timetable for buyers to provide their strongest offers. Buyers then submit the offer with the most money they can afford and the most favorable conditions for the seller, such as waiving the inspection. Then, the seller selects the option that appeals to them the most.
Highest And Best Offer Vs. Best And Final Offer
For home buyers, the highest and best offer means outcompeting others with an excellent purchase price and terms, such as a later move-in date to give the seller more time to move. On the other hand, the best and final offer means making your offer distinct from others by providing special conditions, such as an escalation clause.
As the seller, you usually ask for the highest and best offer to eliminate negotiations and expedite the deal. It lets buyers know you’re looking for only the most serious offers. Conversely, with a best and final offer, you’re asking buyers to go above and beyond the competition to convince you to sell to them.
That said, highest and best versus best and final offers have much in common. In both cases, the seller asks buyers to submit an offer that appeals to the seller’s price point and contingencies. These scenarios occur when a home receives attention from numerous buyers, and the seller asks for the best offers to find the best deal.
5 Tips For Home Buyers Submitting Their 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. These tips can help you outpace the competition and clinch the deal.
1. Enlist The Help Of A Skilled Real Estate Agent
A real estate agent is vital to the home buying process because of their knowledge of the real estate market and ability to negotiate on your behalf. They can provide information on the seller’s preferences so your offer hits the mark. For example, the seller might want to close as fast as possible or prioritize cash offers. Your real estate agent can facilitate communication and help you present your offer in the best light.
2. Make Your Offer Irresistible
The point of highest and best offers is for the seller to see which offer is the most desirable. Make yours irresistible through the following strategies:
- Make a cash offer, if possible. Cash means speedier closing since a lender isn’t involved on the buyer’s end. Even if the offer is lower than others, a cash offer is more attractive because it requires less hoop-jumping to get to the closing table.
- Offer a large earnest money deposit to let the seller know you’re serious about the home. A sizable earnest money deposit means you’re dedicating your financial power towards this single deal instead of putting offers in on multiple homes. It also shows you have the means to close the deal and possibly go above the asking price. A typical earnest money deposit is 1% to 3% of the purchase price, so doubling that can make you stand out from the competition.
- Offer concessions to help the seller. For example, the seller usually pays about 6% of the purchase price as a commission for the real estate agents involved. Picking up this expense means you may pay thousands of dollars more than the purchase price but could land you the deal in a seller’s market. Other concessions include paying off the remainder of the seller’s mortgage and the seller’s attorney fees.
- Fine-tune your contingencies based on your knowledge of the situation. For instance, you could delay the move-in date a few months if the seller wants ample time to move. In addition, if the house has outdated appliances, you could foot the repair bill instead of asking the seller to pay. You can also cancel the appraisal contingency, meaning you’ll pay a specific amount of cash – out of pocket – above the appraisal value to sweeten the deal.
3. Get Your Initial Mortgage Approval
If you can’t make a cash offer, don’t panic; most buyers need a mortgage to finance their purchase. Plus, you can turn this dynamic into an advantage by going into the home buying process with your initial mortgage approval in hand. Your approval letter means a lender has agreed to provide you with a mortgage loan.
This document can give you the upper hand against buyers waiting for their financing to come through. Because sellers generally don’t want to wait on mortgage approvals and risk the deal falling through, they’ll typically pick a buyer with mortgage approval over a buyer without approval. In other words, a sky-high offer without mortgage approval is vulnerable to rejection by a lender, putting the sale in jeopardy.
4. Consider Including An Escalation Clause
An escalation clause can help you stay in the running if your offer isn’t higher than your competition’s. You can set a dollar amount for your escalation clause to surpass other offers. For example, say you offer $250,000 on a home, but you’re concerned another buyer is offering a thousand more. So, you include a $5,000 escalation clause, meaning you’ll go as high as $5,000 more than any other offer. You can set a ceiling for your escalation clause so you don’t accidentally commit to beating a $300,000 on the home (unless you’re comfortable with that price).
5. Respond As Quickly As Possible
Sellers are looking for responsive buyers who move fast on the home. As a result, a seller might sour on the offer with the highest price from a buyer who drags out communications. In addition, if the seller is unsure which offer they like best, your speedy communication can help make the seller’s choice easier.
Make an offer that will get accepted.
Get a Verified Approval from Rocket Mortgage®.
For The Seller: How To Navigate Multiple Highest And Best Offers
Selling a home in a red-hot real estate market can be dizzying. Sifting through offers and examining the terms can be overwhelming, but these tips can help you stay on point when you ask for the highest and best offers:
- Remember, it’s not just about the purchase price. Your asking price is one part of the deal. However, appraisal contingencies, escalation clauses and concessions also increase your profits.
- Act according to your priorities instead of the numbers. For example, if you want to maximize profit, choose the offer that benefits you most monetarily. On the other hand, if you want to close the deal as soon as possible, a buyer with a three-month timetable for closing might not be the best choice, even if their offer is the highest. In other words, it’s best to hold out for what appeals to you most.
- If it's still a seller’s market in your area, you have the advantage in negotiations. If a buyer’s offer seems attractive initially, but they’re slow to respond to you or lack financing, you likely have plenty of other options.
The Bottom Line
Your highest and best offer means putting your best foot forward as a buyer. Today’s real estate market puts pressure on buyers to distinguish themselves from dozens of others looking to make a purchase. Because a seller usually receive multiple offers on their home, they may use the standard of the highest and best offer to weed out buyers who aren’t serious or don’t have financing backing the offer. Therefore, buyers should gather as much information as possible on the situation to make their offer appealing to the buyer and get their financing in order before trying to close a deal.
The real estate market continues to see high demand, meaning buyers are at a better advantage with preapproval. If you’re ready to purchase a home, it’s best to start the mortgage application process with Rocket Mortgage® now. With an approval letter in hand, you can make your highest and best offer with confidence.
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