New Name for "Highest and Best"

Realtor-Speak for "Cut to the Chase"

Once upon a time, "highest and best offer" meant that everyone interested in a particular property -- often a foreclosure -- had to "cut to the chase" and (re)submit their highest offer, combined with their best terms (closing date, financing terms, inspection contingency, etc.).

Then, the Seller would pick one.

The idea was that that was the most efficient way for the Seller to sort through a flurry of offers, and put the kibosh on multiple rounds (and the incentives for skulduggery that can go with, like sharing some bidders' terms with other, favored bidders).

In practice, however, that's not how "highest and best" worked, at least as practiced by many bank-Sellers.

Instead, after getting everyone to up their bid to their supposed maximum, they would once again invite everyone (or perhaps just the "semi-finalists") to submit their "highest and best" offer.

Call it "highest and best, round 2" (sometimes followed by round 3 and 4).

Thanks, but no thanks.

In what I have to assume is a nod to such unsavory scenarios, I just saw the listing agent for a foreclosure I showed earlier this week put out an email asking for . . . 'last and best offers.'

"Highest & Best" -- Games & Abuses

The "Highest-and-Best, I-Really-Mean-it-This-Time" Offer

I've previously blogged about the practice of "highest and best" offers ("Highest and Best, Explained.") Typically used by banks selling foreclosures, "highest and best" is a way to efficiently sort out multiple offers and identify a winning bidder.

Implicit in "highest and best" is a quid pro quo between the bank and would-be Buyers: Buyers "cut to the chase" and put their highest offer -- with the best terms (closing date, contingencies, etc.) -- on the table.

In exchange, the bank agrees to select the best offer -- one more round, no counters.

Except in practice, that's not what the banks have been doing (at least in many cases).

"Highest & Best" Redux

I've been in at least five deals the last few months where my client was told, after submitting an offer, to re-submit their "highest and best" offer -- which they did.

After a few days elapsed, guess what the listing agent (representing the bank) called to tell me?

There was still no clear winner, so my client was invited to -- you guessed it -- "submit their 'highest and best' offer" once again. (I suppose this would be their "really-highest-and-best-I'm-not-kidding" offer.)

Since my client already submitted their (genuinely) highest and best offer the first time . . . they dropped out.

Feeling manipulated, no doubt other bidders did as well.

No wonder you see so many foreclosure deals fall apart, start over, and otherwise stagger across the finish line.

"Highest & Best," Explained

Multiple Offer "Rules of Engagement":
Highest (Offer) & Best (Terms)

Careful readers of MLS listings these days will notice more references to the phrase "highest and best" -- as in "highest and best offers due by noon, Tuesday."

What exactly is the listing agent talking about? Two things.

First, multiple offers have been received for the property in question (duh!).

Yes, these are increasingly common at the lower end of the market, particularly with bank-owned foreclosures priced, shall we say, "conservatively."

Once it's apparent that there are going to be numerous offers, a standard tack is to inform both prospective Buyers who've already submitted offers, as well as those who are on the verge of doing so. A deadline 24 or 48 hours away is announced, and everyone gets a chance to (re)bid.

Two. "Highest and Best" also means, "one round, with no chance to raise."

I've had more than one client, who, upon learning that their offer in a "multiples" situation fell short, insist on submitting a higher offer.

Unh-unh -- that's not how "highest and best" works (assuming, of course, the Seller is playing by the rules).

In fact, that's the whole logic behind "highest and best."

Instead of going multiple rounds with multiple Buyers, the Seller is basically saying, "cut to the chase and get to your highest offer -- with the best terms (contingencies, closing date, etc.) -- now."

Buyers in this situation not only have to decide what the property is worth to them -- they also have to guess what it's worth to the competition!