As the Bay Area real estate market continues to be fiercely competitive, it’s essential for homebuyers to develop a winning strategy when it comes to making an offer in a “highest and best” offers scenario. Bidding wars are common, and listing agents often request “highest and best” offers to determine the most desirable deal from the strongest, most-motivated buyer. In this article, I will provide you with expert tips and insights on how to win at highest and best offers in the Bay Area real estate game.
What are “Highest and Best” Offers?
When a listing agent is in receipt of multiple offers – especially if they are in receipt of lots of offers – the listing agent may ask the seller to authorize requesting “highest and best” offers from all buyers. This is much easier for the agent to do than sending out individual counter offers to specific buyers. It is a way of telling anyone who’s submitted an offer that there are competing buyers, and that the buyer is to submit their “highest and best” offer for the seller’s consideration.
When a listing agent asks for your “highest and best” offer, that will typically be done via a phone call, email, or text message to your buyer’s agent – don’t expect to see a formal, written document requesting your “highest and best” offer (although this can happen). If you decide to respond to the request for a higher-and-better offer, your “highest and best” offer is submitted to the listing either as a whole new purchase offer, or simply an addendum to the original offer. The listing agent may also keep it casual, and be OK if the “highest and best” offer is submitted informally – either verbally, or via an email message or text message.
Of course, you may just stand pat on your initial offer – that may already be your “highest and best” offer, in which case, you simply transmit that information to the listing agent and let the chips fall where they may.
After the listing agent’s call for “highest and best” offers, buyers may believe that this will be the end of bidding for the property – and sometimes, it is. If you are asked to provide your “highest and best” offer, you need to understand that this usually means you will have only one more shot at the property, and if your offer is not deemed “best” in the seller’s eyes, you will lose your chance to buy that property. But don’t be surprised that if you “make the cut” the listing agent may continue to negotiate with you.
Improving your Odds of Winning the Highest and Best Offer
Looking for the inside scoop on improving your odds of winning with highest and best offers? Get in line! Everyone is looking to find the edge on getting their offer accepted in situations like this – and while there is no sure-fire method that works 100% of the time, the tips I’m sharing here will truly give you an advantage versus anyone else who isn’t privy to them.
Stay in Frequent Communication with the Listing Agent
One of the most important things your Bay Area real estate agent can do is stay in frequent communication with the listing agent. When there is a lot of competition, you want to do everything you can to stand out. The better your agent is at communicating with the listing agent, the greater your chances are of getting the deal, even if your offer is not technically the strongest. By frequently and persistently communicating with the listing agent, that agent will know that you are serious and committed to making the deal happen, which is always important to any seller.
Make Your Offer Irresistible
When it comes to making a winning “highest and best” offer, it’s essential to make it as irresistible as possible to the seller. While price is a significant factor, there are other ways to sweeten the deal. Crafting an irresistible offer requires that you have a good understanding of what the seller is actually looking for. To be honest, most sellers want a really high price, virtual certainty that the deal will close, and an as-is sale with zero contingencies. In a competitive market like the Bay Area, this is just about table stakes. But there are some other things you can do to make your offer as strong as possible, which I cover in this article.
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Respond Promptly and Professionally
When participating in a highest and best offer situation, it is crucial to respond promptly and professionally. Listing agents value buyers who are prompt in their communication and demonstrate a sense of urgency. By being responsive and organized, you can make a positive impression on the seller and the listing agent and increase your chances of being selected. This is not the time for your agent to be pushy or verbally aggressive; this is the time when you want to show that you are cooperative and interested in reaching a win-win deal for everyone.
Be Ready for Multiple Rounds of Negotiation
In a multiple offer situation, it is common for sellers to go through several rounds of negotiation – even after calling for “highest and best” offers. Often times, the “highest and best” offer strategy is used to separate the wheat from the chaff. The listing agent will use “highest and best” offers as a tool to see which buyers are really serious and capable of competing. With a smaller set of buyers to work with, the listing agent may still work with those “best” buyers to squeeze them for more money or still-more favorable terms for the seller, through one or more additional rounds of nerve-wracking negotiation.
Give the Seller a Gift
One way to really make your offer stand out from the crowd is to give the seller a gift. I’m not suggesting you buy the seller a new flat screen TV or tickets to see the Warriors or 49ers play – but something thoughtful, heartfelt, and inexpensive. Ideas for these kinds of gifts might be home-made cookies (or gourmet store-bought ones), something sent over from Edible Arrangements, or something as simple as doggie treats if for example you know they have and love dogs.
Personal letters from buyers to sellers are now frowned upon by many real estate brokerages, and the listing agreement may even prevent the listing agent from presenting such letters to the seller. But if you know the seller lives in the home, they may truly appreciate a small token such as one of these gifts I’ve suggested here. I have seen this kind of thing work a number of times. Never intrude on the seller’s privacy and I wouldn’t suggest you ever drop any gift off personally – have them delivered. If you don’t know where the seller lives, you may consider delivering a gift to the listing agent instead.
How to Lose at Highest and Best Offers
The truth is that whether there are 5, 15, or 50 offers on a property, there will always be only one winner, and everyone else is going to lose out. There are plenty of ways to get it wrong, and I’m going to share with you the three most common ways I’ve seen for people to make the wrong offer and lose a home they truly want to buy.
1. Basing your Offer on the Comps
Prior to making an offer, it’s common for buyers to ask their agents to “pull the comps” to get an idea what fair market value is for the property Once you have determined that, prepare to go above that price, perhaps by a considerable margin. Too many buyers miss out on the homes they really want more than any other because they use “the comps” to tell them how much they should offer. All the other buyers are also looking at the comps – which are yesterday’s prices. And don’t worry (too much) about the property failing to appraise: you should have an ample cash cushion just in case, and anyway, low appraisals aren’t much of a problem in the Bay Area.
2. Guessing What Others are Offering
One good way to lose in a “highest and best” multiple offer situation is to base your offer on guessing what someone else would pay. This is totally a shot in the dark, and even if you are somehow making an educated guess (as you would be, with the help of your hopefully-experienced REALTOR) – it’s still just a guess, and you’re much more likely to guess wrong than guess right. Remember, you only have to be wrong by a little bit to miss out on what could be your favorite home.
3. Relying on Peripheral Information
Many buyers will want to try to figure out how much a home is likely to sell for based on peripheral information such as:
- The number or private showings the home has had
- The number of people who attended the open houses
- How many “saves” on sites like Zillow and Redfin
- How many disclosure packages have been downloaded
- How many offers have been submitted
I myself have burned up way too many brain cells trying to figure out if there is an correlation between these kinds of data points and how much a home sells for relative to the list price. I have looked at this question repeatedly, from multiple angles, and at this point I can say, confidently, that there is no discernible correlation between any of these data points and how much you’d need to offer on a home to be the “high bid” in a “highest and best” offer scenario.
There’s no problem collecting this information but be aware that most of the above can only come from the listing agent, who is not required to tell you any of it. While they cannot lie about this information, when asked these kinds of questions, the listing agent may not know exactly (it could be handled by an assistant), or they could simply be mis-remembering. So in addition to most of this information being essentially irrelevant, it should also be considered unreliable to begin with.
Hey Buyers, It’s Rough out There!
How to Win at Highest and Best Offers No Matter What
I literally cannot count the times I represented buyers who are faced with the “highest and best” offer conundrum. After many years in the business, I figured out the only way a buyer can “win” at highest and best offers – at least when it comes to the amount of money offered. While the differences in terms between your offer and competing offers may be limitless, when it comes to the offer price – arguably the most important component of any offer – I have some excellent, winning advice for you.
First, as I mentioned above, realize that with “highest and best” offers in the Bay Area, you will probably only have one shot, and if you don’t hit the mark, you’re out. Since you can only count on a single shot ,you better make it your best one.
With that in mind, let’s say you make an offer on a home for $1,800,000. You submit your offer through your REALTOR, then time goes by, and you find that your offer didn’t make the cut and another offer was accepted.
Later, you find out that the home sold for $1,825,000. You think: “if only I had known that $1,825,000 was the highest offer, I would have offered $1,830,000!” Unfortunately, with “highest and best” offers, you won’t know that. But what you can know is at what point you would simply walk away from the property.
In this example, if instead of offering $1,800,000 you had first asked yourself: “If I knew someone else offered $1,825,000 – would I offer $1,830,000?” If the answer is YES, then you need to offer $1,830,000. But then you need to repeat this exercise: if you lost the property, but found out later the winning bid was $1,840,000 – would you have offered $1,850,000? If so, then offer $1,850,000 – and keep on doing this exercise with yourself until you find out the absolute most you’d pay for the property – which if someone else paid more, you’d be at peace with walking away without regret. By doing this, in a manner of speaking, you win either way.
I can’t tell you how many times I have seen buyers who were crushed when they found out they missed out on their favorite home because they didn’t offer as much as they could have when presented with a request for “highest and best” offers. Don’t let that happen to you and live with what could be a lifetime of regret.
Remain Present, Patient and Persistent
Winning a bidding war can sometimes be a lengthy and challenging process. It’s important to remain patient, present, and persistent throughout the negotiation process. Understand that there may be factors beyond your control, such as multiple strong, competing offers from buyers that are just as eager or more so than you. Stay focused on your goals, but also be prepared to adjust your strategy if necessary.
Enlist the Help of an Experienced Real Estate Agent
One of the most crucial steps in navigating the competitive Bay Area real estate market is to enlist the help of an experienced Bay Area real estate agent. You want to work with an agent who has a lot of experience with multiple offers, and, specifically, the infamous “highest and best” strategy employed by many Bay Area listing agents. A knowledgeable agent can provide invaluable guidance and insights into the market, helping you understand, in addition to the price, what terms will be most attractive to the seller and tailor your offer accordingly. They can also elevate the communication and negotiation on your behalf, ensuring that your offer stands out among the competition.
Conclusion
Navigating a competitive Bay Area multiple offer purchase scenario requires a well-thought-out strategy and the guidance of a skilled real estate agent. By enlisting the help of an experienced professional, making an irresistible offer, and perhaps dropping the seller a small gift, you can stand out and increase your chances of winning in a highest and best offer situation. Remember to conduct thorough market research, remain patient and persistent, and above all, stay within your financial means. With these tips in mind, you can navigate the Bay Area real estate market with confidence and secure a home you’ll be sure to love for many years to come.
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