I posted yesterday the details of our latest property negotiations. As I mentioned, we had made an offer, the bank countered our offer, and we had just submitted a second counter-offer to the bank…
This morning, the bank responded by requesting our “highest and best” offer. This essentially means that the bank doesn’t particularly want to go back-and-forth any longer, and they now want us to come forward with our best offer, so that they may accept or reject it. This is a common tactic these days for REO sellers; it’s generally used when there are multiple buyers offering on the same property (this allows the bank to see everyone’s best offer at the same time), but we occasionally get asked for highest and best even when we’re the only potential buyer.
My strategy for highest and best usually depends on whether I think I’m bidding against other buyers or whether I think I’m the only bidder. If I think there are other bidders, I’ll put in my absolute best offer, as I know there is unlikely to be another negotiating round. But, when I believe I’m the only bidder, I’ll often keep my highest and best a bit lower than my real best offer. I do this for two reasons:
- If the bank accepts the offer, I just received a discount;
- If the bank doesn’t accept the offer, there is still an opportunity to continue negotiations (since there are no other potential buyers).
As I mentioned yesterday, our last counter-offer was $42K, 3 days of due diligence and $2K in earnest money.
When she asked for our highest and best, the listing agent let us know that the bank was looking for an offer near $50K. We let her know that that was unlikely (we reiterated the flood area as well as the long time on the market), but that we’d get back to her with our best offer.
My highest purchase price is probably around $44-45K, and I really don’t care about due diligence (I’m happy with none) or earnest money (I’ll put down as much as the seller wants). Since I’m happy to concede anything around due diligence and earnest money, the only variable I’m now concerned with is purchase price.
So, to leave myself a little room to negotiate later (if the bank rejects my highest and best), I submitted an offer of $43K today. I asked for no due diligence period and offered $5K in earnest money.
I guess we’ll see if they accept it, reject it, or counter-offer on it…
Hey J, thanks for the highly informative posts! One question for you – how do you go about figuring out if you think you are the only bidder or not?
Best of luck getting this property down to the price you need it at.
-Harry
Hey Harry –
Generally, it’s pretty obvious. In fact, many times the listing agent will tell you if you ask.
Here’s how we knew in this case:
1. We called before we put in our original offer to ask if the house was still available. When we were told that it was still available, we followed up with, “Are there any offers?” While it would probably be smart for the agent to say yes (even if there aren’t any others), they will almost always tell the truth at that point in time (they don’t want to discourage anyone from making an offer, and tell people there are other offers might do that).
2. The bank negotiated with us for a day or two before asking for highest and best. If they had other offers at the same time, they likely wouldn’t have bothered negotiating in the first place, and would have just asked for highest and best to start with.
3. When my wife originally called, the listing agent said something to the effect of, “Bring us any offers, the bank is ready to get rid of this one.” This say to us that they haven’t had much traction, if any. That combined with the fact that it’s been on the market for 6 months told us that there weren’t many other people looking at this one.
Good job, J Scott. Very rarely do I move up on highest and best. I usually just submit my same offer and tell the agent if it falls out let me know.
Banks can sometimes be crafty, on one property we offered $63k. The bank called for highest and best, I sent in $63k again. The bank accepted our offer and the listing agent said we where the highest offer by $10k. Oddly, enough that was one of my best deals of 2009.
I think that with “highest and best” just make sure that you don’t get too excited and over bid on the property. This can certainly happen as you get caught up in the emotion of it all. Your money is usually made when you buy the home.
Just don’t over bid. Many folks just try to do too much and over bid. Don’t get emotional.