Highest and best offer...

By
Real Estate Agent with Long Real Estate

My business partner and I have been working with several buyers lately who are interested in purchasing bank owned, R.E.O. properties.  And we can tell you first hand that the market for this segment of homes in the Phoenix area is red hot right now.  Which leads me to the title of this blog post, "highest and best offer."  Now tell me if I'm wrong, but I didn't think the real estate market was a silent auction.  We get this response a lot these days from the R.E.O. listing agents.  Is this really in the best interest for all involved?  It seems to me that it would be in their client's (the bank) best interest if all offers were open to potential buyers, thereby ensuring the bank gets the most money for their property.  Instead buyer's will often just walk away and find another property.  Quite possibly if the buyers knew what they were up against they might make a higher offer. The bank would then net more from the sale.  Seems to make sense to me. Or am I missing something?

I know if I'm a listing agent for a normal client (not a bank) and we had multiple offers on their property my client would most likely want me to tell the buyer's agents where they stand in order to create a bidding war and reap more money.  Why would a bank be any different?

Can someone explain this absurdity to me?

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Rainer
42,616
The Entire Team of Price & Company Professionals
Price & Company Realty - Myrtle Beach, SC

I'll make you a deal... if you can explain to me why a lender would rather foreclose on a property because the note is due (lose money), instead of allowing the owner to extend the terms of the loan and continue making payments until it can be sold... then I'll try to come up with some explanation for your bank's stupidity.

Apr 16, 2008 08:33 PM #1
Rainer
215,024
Lisa Friedman
Alliance Realtors - Bedminster, NJ
Central New Jersey Real Estate
Jerry, your comments make total sense to me.  As a buyer, if I knew what the other offers were and I really wanted the house, I would outbid the others.
Apr 16, 2008 08:34 PM #2
Rainmaker
732,155
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
CRS, GRI, e-PRO, Searcy AR
Foreclosure properties that I deal with, if they get multiple offers, tell us to ask each for their highest and best offers.  They can't counter each one and they can't very well tell each one what the other offered.  It would put the listing agent in a very bad situation.  Multiple offer situations are never pleasant.
Apr 16, 2008 08:41 PM #3
Rainer
41,833
Greg Hampton
Re/Max Around The Mountains - Blue Ridge, GA
North Georgia Mountain Property,Blue Rid
Bank have loan loss reserves to cover their butts. They consider their first loss, their best loss.
Apr 16, 2008 08:43 PM #4
Rainer
86,440
Ron Parise
LocateHomes.com - Cape Coral, FL

Good point Jerry,  there is no reason why there cant be open bidding. and I think you are right the seller would probably net more. But there is nothing wrong with the blind auction either. especially when its not really a multiple offer situation at all. Im convinced my clients have bid against themselves on more than one occasion

Barbara, how is the listing agent put in a bad situation if his client elects an auction. And why cant they counter each offer in a multiple offer situation?

Apr 16, 2008 08:52 PM #5
Rainmaker
732,155
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
CRS, GRI, e-PRO, Searcy AR
If they counter each offer, they may sell it multiple times.  That would be bad business.  I'm just talking about the ones that I work with.  There are auctions on houses and they are usually announced.  HUD houses have a form of silent auction.  Bids are made and opened on a certain day.  VA waits 10 days as a gathering time and then opens the bids. 
Apr 16, 2008 08:57 PM #6
Rainer
38,497
Ulises Romo
Realty One Group - Phoenix, AZ

This is a big dilemma in Phoenix. I work with an agent who deals with R.E.O. properties. And I can tell you that the bank could tell the potential buyers what the other offers are. However, the bank is like a poker player who doesn't want to show his cards, and the bank has a great poker face.

The bank is probably trying to get a buyer to bid against themselves like Ron noted. This seems like a weird and crazy practice, but I do believe it has worked and does work for them. Additionally, have you ever wondered if the listing agent on a regular resale home is being truthful when they tell you that they already have multiple offers over list price. Then a few weeks later you see the home is still listed. This is a borderline unethical game they are playing that can work for them or against them.

Good Post by the way.

Apr 16, 2008 09:03 PM #7
Rainer
51,033
Christopher Bonta
The Bean Group - Londonderry, NH
Realtor, Integrity and Honesty
Jerry, your talking about the same people who created the mess were in.
Apr 17, 2008 11:20 AM #8
Rainer
32,916
Tracy Nicole Hamilton
Elk Grove, CA
Realtor - Elk Grove CA, Sacramento, CA

QUOTE BARBARA ~ Foreclosure properties that I deal with, if they get multiple offers, tell us to ask each for their highest and best offers.  They can't counter each one and they can't very well tell each one what the other offered.  It would put the listing agent in a very bad situation.  Multiple offer situations are never pleasant.  END QUOTE

Barbara, I could not agree more.  As the listing agent on REO properties this DOES become a very bad situation.  I have dealt with this very thing on my last two listings that have gone into escrow.  The banks listed the properties (very desireable properties) "to sell".  It was like the WHOLE COUNTY was interested in these houses.  One house had 19 offers, the second 21 (you can only imagine how many phone calls).  My fax machine, email, and cell phone were on overload.  I had to leave blanket statements on my voicemail greeting leaving information about the properties and asking agents not to leave duplicate messages.  The last week of my life has been HELL to say the least. 

Nonetheless, the bank "countered" HIGHEST AND BEST OFFER---on BOTH houses.  So that was 40 faxes/emails to notify each agent and just as many phone calls answering 100 questions.  The saga feels like it is never ending.  I have some agents revise their clients offers 3 times trying to reach the top of the pack.  It gets out of hand quickly.  I could not agree more with the bank's tactic...I now use this phrase in my MLS comments advising people to present their highest and best offer the first time because they may not be countered. 

Jerry ~  GREAT POST!!!!

 <Funny...as I type this my phone is ringing on a Saturday from an agent who is unhappy about this very situation.  His client is basically threatening to sue if he doesn't get the house.>

Apr 26, 2008 01:28 PM #9
Anonymous
Anonymous
This is a great post on a hot subject.  My daughter and I plan to have a short training at our open house to inform the potential buyers on how the REO process works, so we can maybe avoid the madness of confusion (MAYBE).  Thanks for this post.
May 06, 2008 04:05 AM #10
Rainer
13,858
Mark Tillett
Asset Realty Group - Seattle, WA

Here’s the problem that I have with "highest and best".

In an “escalator clause” situation, if you have the best offer, you are privy to the other offers on the table.

In a “highest and best” situation, you don’t. At least I don’t with the one I have an offer on right now.

This hardly seems ethical, let alone legal to me. In my opinion, it leaves alot of room for fraud on the bank’s part. How do I know that there are 4 other offers on the table, and that they are for the amount and conditions that the bank states they are.

This doesn’t seem right to me

Feb 09, 2009 04:17 PM #11
Anonymous
Harold Humphries

Jerry,

Your right Highest and best for a counter offer becomes a silent auction, plus it does not put us aa Realtors or the buyer on a even playing field. I been helping doing Real Estate auction since 1993. I now with Auction One Las Vegas (AuctionOneLasVegas.com) I came with a full price offer,CASH,buyer waived all their rights, will close by 10/30/09 or sooner. Normally it not the buyer, but the bank BS, we can close today if needed. We got a back from the listing agent highest and best. We what part of full  price offer is needed. plus either accept, counter with a price or terms or reject.

I feel that the listing agents are not following the banks list price and putting in their own prices to get a bidding war on the property, That is deception business  to the public. All our bank REO they give us a listing price and we take the offer to the bank, we refuse to take any counter offer of highest and best, either counter them all back or pick one accept it or counter it. and reject the others.

We auctioned and sold 32 high rise lofts Newport loafs, August 29,2009 3pm in the afternoon, in 100 degree on a Saturday. We had 350 CASH buyers and we SOLD all 32, Public Auction, every one knew what each buyer bid and sold for, did almost 10million dollars, all cash. The buyers knew that moment if they had won the bid and sellers knew it was one less the worry about. it took 3 hours, 10 million in three hours. tell me were a realtor can do that off the MLS. We have closed 3/4 of them this week. We have done almost 90 million dollars this year. The Realtors better be careful. Auctionis a even playing field!! and fair way to sell Real Estate. Not some guessing game. We are licensed, bonded with the city and county and the Auctioneer has over 30 years as a licensed Auctioneer, hold the hightest credidental, belong to NAA and has parnter up with Charwell.

Thanks

Harold Humphries  

                                                                                                                            

 

 

Oct 07, 2009 01:48 PM #12
Anonymous
John Williams

As neither an auctioneer nor a real estate agent, but an economist and real estate buyer, it seems to me that a seller would generally get the best deal from an auction.  Everyone understands what this is and the process is totally transparent.  If buyers can trust the process, they are likely to be willing to bid more.  The "highest and best" process is opaque.  If a listing is at a certain price, a buyer has a hard time understanding why they don't necessarily get the property if they are the first to agree to the list price.  In no other transaction situation in the US (that I can think of) is this not the case.  Already, the buyer who has bid the asking price is feeling like he is getting hosed.  Then we hear, "present your highest and best" by a certain deadline.  But we are told this is not like dealing with a person, it is an institution, they have to meet, consider all offers, blah, blah, blah.  We don't know the deadline; we don't know the process.  This creates a situation which economists call "information assymetry."  This means that one side knows everything and leaves the other in the dark, like dealing with a hay-seed mechanic in a small town.  Well, buyers don't trust the sellers in these situations and are less likely to put their top dollar at risk.

Mar 31, 2010 08:55 PM #13
Anonymous
Randy

I placed a bid on a house and a week later the bank come back asking for highest and best. I added another three thousand to my offer and lost the house to a lower bidder. Why would the bank take a lesser offer on a property?

Feb 08, 2011 02:02 PM #14
Anonymous
jeff

I believe the highest and best scenario has been abused and so many investors go on to other houses when they hear those magical words. A property can sit for 6 months and if you make an offer, most times, you will get a call asking for highest and best.

Where may one find the legal guidelines for the administration of a highest and best offer scenario?

Jul 12, 2011 09:26 PM #15
Anonymous
Carol Castiglione

 

I am in agreement that this hardly seems ethical let alone legal. When the listing Broker has multiple offers, one is the highest, why doesn’t he present them to the bank and the bank choose one. It is fair to the person who had the highest offer to start bidding.

If you want to have bidders the banks need to auction the home.

Brokers are allowing the banks who do not have a broker’s license to dictate how to sell real estate. The brokers need to tell the bank you have financial licenses not a broker’s license and this is how it needs to be done.

I am so tired of this I want to call the Department of Professional Regulations and find out what is legal.

 

 

Dec 28, 2011 08:52 AM #16
Anonymous
Jerry Murphy

I hear you Carol.  The problem is the listing agents/brokers are too scared of the banks to stand up to them and tell them that what they are doing is wrong and is an ethics violation.  The agents are afraid of losing their account.  Because they know the bank can find some other schmuck that will do their dirty work.  What needs to be done is that we as the buyer agents need to report these listing agents to our respective governing boards.  The agents can say all they want about their fiduciary responsibility to their clients, but fiduciary responsibility does not include acting unethically.  Thanks for the response.

Dec 28, 2011 09:17 AM #17
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Rainmaker
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