What does “Highest & Best” actually mean?

If you’ve been anywhere near the real estate market in the last year and a half, you’re probably familiar with the term “highest and best.” But for those who are just stepping in for the first time, or the first time in a long time, it might take a minute to wrap your head around the concept. The thought of throwing out your largest number and eliminating your negotiating room might seem outlandish, but in today’s market, it’s almost necessary to be taken seriously by the all-powerful sellers. Knowing what you as a buyer (or a seller) are comfortable with, is essential for successful transaction. We always recommend talking with your trusted real estate professional, but we’ve put together a few must-know’s while navigating today’s competitive housing market!

Let’s start with what “highest and best” actually means. Often, listing agents will indicate a day by which all “highest and best” offers should be submitted. From the pool, the seller will select the offer with the most desirable terms and price. This is in stark contrast to not long ago when buyers would come to a seller at any time with an offer that would usually leave some room for negotiation. Instead, the seller is in the driver’s seat, combing through offers (usually with great terms and above asking price) to select the one that best suits them.

It would seem logical to simply accept the offer with the highest purchase price, right? Unfortunately, this dance is much more nuanced than that. Where a lot of buyers are falling short is in the “best” portion of “highest and best.” Of course, you’ll want to lead with your “highest” offer, but desirable terms and conditions may help you stand out in that sea of multiple offers more so than money will. This can mean a lot of things, such as reducing or eliminating inspections and appraisals or including an escalation clause (NCJAR simply explains: “I will pay x price for this home, but if the seller receives another offer that’s higher than mine, I’m willing to increase my offer to y price.”). Talk to your real estate professional before defining your terms to make sure everyone is on the same page before submitting.  

Being on the seller’s side definitely seems more desirable in this scenario. You could end up with a pile of offers sitting in front of you, all above asking and with great terms. It might be hard to fight the instinct to accept the highest offer, but don’t negate a lower offer with better terms! After all, better terms could end up getting you more money in the long run, especially when appraisal time comes along. Go over every offer in detail with your Realtor, weighing all the pros and cons. It is also important to note that there is no requirement to set a “highest and best” date just because it has become quite common place. This decision is up to the seller, guided by their real estate professional.

Whether you are a buyer or a seller in today’s market, reach out to us today to learn more about your options. We’ll help you come out the other side a winner!

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