Record prices in the housing market are easing up, but bidding wars continue in competitive areas. Silly misunderstandings or misinterpretations of real estate language can cost you the house of your dreams and you could find yourself back at square one in your search. Take time to learn key terminology and you may be well on your way to moving into your new home.
There is a distinction between the terms “highest and best” and “best and final,” used to describe the kinds of offers a buyer should know when purchasing a home. Knowing the differences and some tips to help you get the best deal will help you navigate the home buying process. Read on for the definitions — and for insight on the subtleties of each so you won’t lose out on your new home.
What does ‘highest and best’ offer mean?
Sellers are generally trying to initiate a bidding war when they ask for a buyer’s “highest and best” offer. They plan to play potential buyers off each other to get a higher price for their property. It can be code for the seller wanting a firm purchase price. It may also mean you’ll accept the home as is, leaving little room for negotiations after the offer is finalized.
‘Best and final’ offers
When a seller asks for a buyer’s “best and final” offer, it typically means the seller wants a quick sale and doesn’t want lengthy negotiations. It means they want to avoid a bidding war, putting potential buyers on equal ground.
Strategies for a ‘highest and best’ offer
To win a bid among other potential buyers without regrets and with an eye to getting your new home, requires a plan.
While you won’t know what others are offering, you can ask your agent to gather as much other information as possible. Such details could include what’s most important to the seller aside from the asking price. Also, the buyer’s agent may be able to glean what the seller will accept to get the deal done.
Special contingencies may make your offer more appealing if you know about it and can meet the requirements. For instance, is the seller looking for a rent-back agreement, meaning you won’t be able to move into the house right away? Or is he looking for a quick closing time frame? If you are flexible, you could close on that deal even if your offer isn’t the highest.
Another strategy is paying in cash. Even if other offers are higher, “cash is king,” and may close the deal. It’s always a best practice to have a pre-approval letter from your bank if cash isn’t an option for you. And keep mum about discussing any issues with the home until the offer is accepted.
Strategies for a ‘best and final’ offer
When dealing with “best and final” bids, be sure to have an escalation clause, which is a range of prices a buyer will offer to allow them to beat competing bids by a set price, such as $5,000, for example. As the buyer, you can set how much you will pay over the highest bid, so if you have an amount you don’t want to exceed, you can agree to pay $5,000 above the highest offer, but not to exceed your cap.
One successful strategy is to make your offer stand out. Rather than offering $350,000, make the offer something like $350,423. It can make your offer look different and may stick in the seller’s mind.
Additional successful tactics include paying closing costs, forgoing inspections, waiving specific contingencies, and request being put on the seller’s waitlist in case a previous offer falls through.
Buying a house is a business deal in which both buyer and seller want to win. Being informed and presenting your case well is crucial in procuring that win. But remember, you may lose a few times before getting the win, so don’t take it personally.