Highest and Best...i'm sick of it.

Everytime there are multiple offers on a house, how do realtors tell the Seller of the property to handle the situation? They call for “Highest and Best” Right? If you have been out shopping for homes lately, you have heard this. I say there is a better way…for everyone.

First, lets start with where did this “highest and best” come from? It came from the banks who were selling foreclosed homes in the Great Recession housing crisis when almost 50% of sales where foreclosures or distressed properties. A bank hires a realtor and they are handling multiple properties and every property has 10+ offers on it and the agents are overwhelmed, and making very little money on every transaction. They don’t want to work to make the seller a few extra dollars. Also the Bank and the realtor don’t communicate very well, especially on multiple properties, so they tell the realtor to sell the property and get them the most they can for it. No offense to the realtor, they don’t really care if they get $5,000 more for the property or not, they get close to market value, it sells quick and they move on. Everyone is happy. So they called for every Buyer to submit their “highest and best” offer by a certain date and time - no negotiating, no telling anyone what the offers are, get the highest offer, send it in to the bank and move on. So many realtors were involved in these transactions and that’s where they figured out how to handle multiple offers. Realtors think this is how we have to handle this.

I say there is a better way….for everyone

Here is how I handle multiple offers. I disclose the offers to all parties. Yes, this can be done as long as you have the Seller’s permission to do so. Most Sellers want you to get them the most amount of money and the best offer and if this is a way to do that, why wouldn’t they want you to do so.

Lets say we get 3 offers on a house that is listed for $499,000. The 3 offers are $490k, $499k, $503k. Again, the way most realtors would handle this is to let all Buyers know that they need to submit their highest and best offer by 5pm on Thursday. So, the buyers don’t know what the offers are maybe they go slightly above list price but they aren’t going to overbid without knowing what the other bids are. So maybe the bids end up $495k, $501k, $505k. Not bad, you would think a Seller should be happy. But they left money on the table.

Let’s play it differently. Once we receive all 3 bids, let’s try this. Lets tell the 3 offers what the other offers are and tell them we are going to pick the best. Now one of the buyers says after hearing about a $503k offer: “well we gave them list price but we are willing to go up a few thousand and if we go to $504k, we can get the house. So they go just higher than the $503k offer and now you have $504k. Now the offer that was at $503k says, well I’ll revise up a couple of thousand and go to $506k, of course they would go up a couple thousand. And this keeps going until one of the buyers says, we aren’t going any higher. Then the Seller picks the offer they want. In general the Buyers stretch as far as they possible can to get the house. And not only is the Seller happy but the Buyers feel they have had a fair shot at the house. If they wanted it, they could have bid higher. I can’t tell you the number of times that a Buyer has said, “of course we would have bid a little higher, we just didn’t know what it would take to get the house”.

So I am trying to educate realtors to handle multiple offers differently because I think it is a more transparent, fair process to all involved and it gets the Seller the most money for their house. I have had great succes in multiple offer situations using this tactic and will continue to do so in the future.