Many of our buyers are experiencing "highest and best" situations where a property has received mutliple offers and the seller has asked all interested parties to submit their very best offer. We've written about this before on our blog, but wanted to write about it again since it's becoming the "norm" around here.
If you're in a multiple offer situation and are wondering how you should even begin in making your best offer, here are few tips to remember:
"Highest & Best" doesn't just mean sales price. Just because you offer the highest sales price doesn't ALWAYS make you the best offer. There are other terms that you should consider when making your offer ...
- the seller may consider what type of financing you're pursuing. Are you paying cash? They say "cash is king," ya know. Conventional vs FHA vs USDA, etc.
- Pre-qualified vs Pre-approved?
- If you're in highest & best situation, don't even think about trying to get away with submitting an offer without a pre-qual. Sellers don't want to risk giving up other buyers for someone that can't show that they have at least talked to a lender and can obtain a loan. If you really want to increase your chances of winning a property, try to obtain a pre-approval letter if time allows. The difference you ask? Generally, a pre-qual letter is typically issued after the lender checks your credit and uses information that you verbally provided to qualify you for the loan. A pre-approval letter is issued once a lender has received documentation supporting the information that you provided. If you have a pre-approval, it can make a seller feel more confident in your ability to obtain a loan and close on their property.
- Find out if the seller or the listing agent has a particular lender that they know and trust. If so, perhaps it's in your best interest to also get pre-qualified with that lender, even if you have no intention of using them. There are a lot of bad lenders out there that allow deals to fall apart just days before the closing date. Sometimes a pre-qualification letter isn't worth the paper it's written on and so banking on a financed contract is somewhat of a gamble; however, if the seller/listing agent trusts a lender's opinion and you obtain a pre-qualification letter (or better yet, pre-approval letter) through that lender, they'll likely feel really confident in your financing. Brownie points, it goes a long way.
- There are many contingency types -- financing, appraisal, inspection, etc. In each scenario, having such a contingency would give you as the buyer the option to terminate the contract for a certain period of time and in certain situations. The "best" offer is obviously NOT the one that provides a buyer with nine different ways to back out without penalty. To a seller, this seems as if the buyer isn't fully committed. While some contingencies are necessary, try to limit the contingency time periods as much as possible.
- Closing Date:
- As simple as this sounds, it matters to sellers. Try to find out from the listing agent what the seller's situation is. Are they really anxious to get the property sold or are they hoping for an extended closing period so that their children can finish the school year? Use this info in making your offer. It's a small detail, but if you can write a strong offer AND meet the seller's needs, you're winning points.
- Seller Paid Closing Costs:
- You may need or want assistance with closing costs and that's okay; however, DO remember that it all factors into who has the "highest and best" offer. For example, if you offer full price on a home of interest but ask the seller to pay 4% towards your closing costs while another buyer offers full price with only 2% in closing costs -- well, it's obvious which one would be the best.
- Bad Strategies:
- We're seeing many buyers/agents submitting offers that are WAY above the asking price. Buyers are doing this, likely on the ill-advice of their agents, because they are obtaining financing and they know that their ridiculous offer amount will surely make them the "best" offer, all the while knowing that the home will never appraise at this high amount. If it will not appraise when the appraisal is completed, the buyer cannot obtain the loan and they will then ask the seller for a price reduction on the basis that the home didn't appraise. This allows them to "win" the offer up front by being way above the other offers on the table, knowing they will ask for a price reduction later because the house will not appraise for their inflated offer price.
BAD IDEA! I'm sure somewhere, some place it has worked, but most agents aren't that stupid and this can really offend a seller. If you're a seller, watch out for this tactic! Don't dream of obtaining that high offer price unless it's realistic. Buyers, play smart, but not dirty.
- While it's not the ONLY factor, it's definitely one of the most important terms... probably the MOST important. In our local market, most highest & best situations end with many offers (one listing that I showed the other day had 20+....crazy!) and these offers tend to be full price or higher. Make a wise decision based on your budget and the comps, but come in strong; especially if you REALLLLLY like the property. Lowballing in a highest & best scenario just won't cut it.
Hopefully these tips will help you in drafting your best offer for your dream home, but do remember, every property is different and every seller is different. One may care about certain aspects of an offer while others care about different ones. Some banks don't care about anything but the numbers (show them the $$!). Look to your Realtor for advice!