What does "highest and best" mean?

By
Real Estate Agent with Keller Williams Commerce

So your real estate agent has called you and says your bid is just one of many that the listing agent has received on the Southfield foreclosure.  He says you need to give your highest and best offer.

"Highest offer" means highest price.  But highest price doesn't always win.

"Best offer" comes into play now.  "Best offer" means the easiest type of offer to close.  "Best offer" means the least number of possible obstacles.  So I am going to list the "best offers" in order.

  1. Cash offer with no inspection
  2. Cash offer with inspection
  3. Conventional mortgage with large down payment with no inspection
  4. Conventional mortgage with large downpayment with inspection
  5. FHA mortgage with no inspection
  6. FHA mortgage with inspection
  7. 203K mortgages, or any mortgage that is out of the ordinary.  Banks and listing agents get nervous about specialty loans.  If the listing agent doesn't use the loan a lot or unsure about the closing potential they are going to recommend to the bank to go with a different offer.

I have seen cash offers with no inspections win over a FHA inspection when there was a $25,000 difference.  So when you are putting in your "highest and best offer" think about what I said above.

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Re-Bloggged 6 times:

Re-Blogged By Re-Blogged At
  1. Joan Lorberbaum Moore 04/04/2010 09:44 AM
  2. Gareth Ellzey 04/04/2010 01:21 PM
  3. Rodney Mason 04/04/2010 07:40 PM
  4. Gene Riemenschneider 04/05/2010 10:50 AM
  5. Jason Kardos 04/07/2010 04:21 PM
  6. John Martelotti 05/19/2010 04:52 PM
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what does highest and best mean

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Rainmaker
598,574
Donne Knudsen
CalState Realty Services
Los Angeles & Ventura Counties in CA

Russ - You just described my market here in Los Angeles & Ventura counties.  While it's hard enough explaining best and highest to buyers, it's even harder explaining three weeks later that "best and highest" was a cash offer 30k lower than the one your buyer made.  When they learn that tough lessen, it can be devastating to their morale and their desire to continue looking.

Around here, financed buyers, especially FHA buyers (most of my clients) are pretty low on the totem pole and it doesn't take them long to learn that.  I spend more time keeping my clients motivated and out there looking than I do on their actual escrow.  I can close an FHA escrow in a few weeks, but those buyers have probably been looking for several months.  The real work is keeping them looking and not letting them give up.

April 05, 2010 11:33 AM
Rainmaker
276,322
Martin Kalisker
Weichert, REALTORS - Synergy: MA Real Estate & Mor
WEICHERT, REALTORS® - Synergy

If a buyer waives an inspection, I require them to sign a "hold harmless" letter against my firm.  In my opinion, it is penny wise and pound foolish to blindly make an offer on a home - whether as an investment or for personal use - that you are not fully aware of the issues confronting you.

I recently viewed a foreclosed home that was being flipped.  The guy (an out of state private "investor" bought the home, which had been foreclosed upon, for $171,000 when the house had been winterized and all systems and water shut off - and was trying to flip it for $259,000 (which is what the market will bear for a similar home in "move in condition").  However, in doing so, the guy spent all of his money replacing the stairs and bringing the electrical and heating systems up to code (and otherwise fighting with the Building Inspector), that he couldn't redo the floors which had some water damage from the leaking ceiling, the appliances he put in were used, the bathrooms were not redone and the exterior siding was not repaired.

Do you think he got offers for this home?  No.  It's been sitting on the market for 281 days and the current listing price is $164,000 "as is".  My clients still do better at this price (but they don't want a fixer-upper in progress).

 

April 05, 2010 02:04 PM
Rainer
40,704
Amanda Smith
Allison James Estates & Homes Elite

I wish this was easier to explain to the fha buyers.  They just don't seem to understand why their offers keep getting beat out by the investors no matter how many times you explain it.

April 06, 2010 12:18 PM
Rainmaker
260,268
Wayne B. Pruner
Tigard Oregon Homes for Sale, Realtor, GRI
Oregon First

That's a good list. Now if everyone would just think as clearly as you........

May 15, 2010 01:20 AM
Rainmaker
124,583
Matt Robinson
Pensacola Real Estate (850) 292-4000
ERA Emerald Coast Realty

Very good points indeed.  Buyer's definitely need that explained to them before they make a final decision on "highest and best."  Otherwise they will often find themselves out in the cold looking in at the other buyers enjoying the house they wanted. 

September 20, 2010 01:28 PM
Anonymous
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