So, you’ve made an offer on a home (in this crazy market that is 2020-2021) and the Seller and Seller’s agent come back and ask for “highest and best.” What exactly does that mean? This is a term that both Buyers and Sellers need to understand and how it can affect the purchase (or sale if the Seller) of the home.
First off, it means what it says. You may have already submitted an offer on a home, and the Seller has received multiple offers on their property. They are asking you to look at your offer, and submit your “highest and best.” You can also find this term on homes listed, meaning if you still wanted to submit an offer, you better have your pencil sharp! Sometimes, a Seller will just review the offers they have and select the best one (with the help of their agent, of course!) But then others will see if they “can do better” and call for highest and best.
There are many parts to your offer, and you want to look at all of them to see where you can improve. It’s a common mistake for a buyer to just focus on one part of their offer. Let’s look at some common mistakes Buyers make in this situation.
“Highest and Best” Common Mistakes
Put it in Writing
In Georgia (and probably any state) a verbal offer is not a binding offer. Your agent needs to update your offer you have submitted, and have you sign it. This can be done in person, but with today’s real estate technology, it can be done electronically. Pay particular attention to your pre-approval letter. If you increased the purchase price significantly (or at all) make sure you have an updated pre-approval letter from your lender.
Finding out What is Important to the Seller
Well, getting the most money for their house, right? Sure, that’s part of it, but there are other factors that could be more important to the Seller. Your agent should have this conversation with the Seller’s agent to learn of any unique situation that the Seller might have. One example is a longer closing date. Maybe the Seller is under contract to purchase a new construction home, but it won’t be finished for 2 more months. Your offer could include a closing date to match the closing date on their new home. Another consideration is to close earlier, but then “lease back” the home to the Seller for those two months. You become a landlord in this situation and would need a lease in place (your agent can help with this as well) and you also have to confirm your lender will allow this.
Just Changing the Price
As we said earlier, there is more to your offer than just the purchase price. A common mistake is buyers just raise the price, without looking at the other terms of their offer. Other parts to consider:
- Contingencies in the Contract The most common contingencies in a Georgia real estate contract are the financing and appraisal. In a hectic, seller’s market, it may be a challenge to shorten your appraisal contingency, as a third party does this on behalf of your lender. But a good relationship with your lender will help, as they will know how much time they can work with to get an appraisal back. Your financing contingency is completely up to your lender and where you are in the loan approval process. A good lender can have you fully approved and they just need the purchase contract and the appraisal to finish your loan. This means you have submitted all the required documents to your lender, and they have been able to approve your loan based on all of that information. Here again we refer to the lender you work with and the things you need to do!
- Earnest Money Deposit Earnest money is your good faith deposit attached to your purchase agreement. There is no set amount required in the state of Georgia, but by offering a large earnest money deposit, you are showing to the Seller that you are serious about buying their home, and are willing to put up a larger deposit. This amount can later become an issue if there Buyer cannot close, and the Seller seeks to retain that deposit.
- Due Diligence Period In Georgia, you have an opportunity in a purchase contract to ask for a period of time to complete a home inspection, review condominium or HOA documents and any other information you may want to obtain. This is a negotiable period of time, and can be as short as “0” days to 10 days. During this time, the buyer has the option to terminate their contract and receive a full refund of their earnest money payment. To the Seller, this is a statement like, “I love your home (submitted an offer) but I’d like to take a second look and make sure I am happy (inspection, etc.)” It also means the Seller could lose valuable marketing time with their home off the market during this due diligence period.
Waiting For a Deadline
When the Seller asks for “highest and best” there will be a time limit, or deadline, when your revised offer is due by. First, it might seem like being right at the wire will be the best way to win. (think of an auction when the final bid comes in at the ‘going, going’ and it wins). But just because the Seller provided a deadline, does NOT mean they will honor it. If they receive a really great offer before the deadline, they may choose to move forward with that offer….and it might have been yours if you had already submitted it. It’s easy to get this offer in quickly via the electronic documents and systems that you agent has in place.
Do You Have the Right Team on Your Side?
When you are buying a home, there are several people involved that help you get to the Celebration Day! Those people make up your real estate team. If you are working with a local lender, they can have better contact with their underwriting department to get you that loan approval we mentioned earlier. If there is a last minute need to update your preapproval letter, you can miss out on that offer when they are an unresponsive, or online lender that is not easily accessible.
A local lender can also call the listing agent directly to confirm that you are indeed pre-approved (or have that full loan approval) and this could put you at an advantage. Also part of your team is the home inspector. Working with a reputable company that can get your inspection scheduled quickly is important as well. (And that they do a GOOD inspection…it’s not all about how much they charge)
And the reputation of your agent is important. If they are known for being easy to work with and responsive to emails and phone calls….this can make a difference.
Some Final Thoughts
Who you work with matters! You want to have an agent that can help you understand the market conditions, what’s happening in the particular neighborhood where you are looking and be able to build you a strong offer! If you know there are going to be multiple offers, then you want to have your best foot forward with your first offer. You could be competing with an all-cash buyer with minimal or no contingencies, but cash does not always win!