How to Handle a Highest and Best Situation on a House
I have sold many houses that I owned and houses for others as well as a real estate agent. Over the years I have learned what I think are some best practices for a seller to handle multiple offers. In many parts of the US the real estate market is crazy hot and multiple offers on a house are not uncommon. I listed a flip last week that had four offers over asking price.
I am listing a flip tomorrow that I hope to get multiple offers on as well.
https://steemit.com/realestate/@investfourmore/vhp8d1bw
How do I handle multiple offers?
When I used to list houses for banks, the bank would always ask for highest and best as soon as they received more than one offer. The idea behind asking for highest and best is that it gives every offer a chance to raise their price knowing they are competing with other buyers. This is how highest and best usually works:
-The bank notifies all buyers that there are multiple offers.
-The bank tells the buyers that they have until a certain time to submit their highest offer.
-The bank requires the buyers to sign a form that says the buyers are submitting their highest and best offer.
Usually buyers will sign the form and submit a higher offer or leave their offer the same. However, some buyers will withdraw their offer and claim they do not want to be in a bidding war. I think this is just stupid. Leave your offer the same, but why withdraw it if you want the house!
When I am selling my own houses I stopped asking for highest and best formally. I simply tell buyers that we have multiple offers and we will be reviewing offers at a certain day and time. If they want to change their offer please submit it by the time specified. We are basically asking for highest and best, but wording it different. This seems to keep more buyers interested.
How do I respond to multiple offers?
When I get multiple offers I look at many things:
-Who the lender is
-Inspection dates
-Price
-Closing date
-Money down
-Loan type
-The agent
On the last deal I had one offer that was the highest, but the buyers were using a lender I have had major problems with in the past. I also had another offer than was two thousand less, but had a decent lender. I decided to counter the lower offer at the same price as the higher offer. I told them we had a higher offer, but we did not like that lender and we preferred to work with them. Usually this works, but in this case the buyer said no, he would not go up any. I decided to split the difference and come down one thousand. The buyer then said they wanted my mineral rights (which I excluded because I already sold them). I told them that was not possible and they would not budge at all. I could tell this buyer would be a pain so I went with the higher offer and risked working with the shady lender. We will see how it works out, but we also warned the agent that we have had problems with this lender and to watch them carefully.
We also had another offer that was close in price, but the buyers had to sell their house to buy my house. They had not even listed their house yet, and the closing date was much farther out so I did not even consider this offer.
If you want some help learning how to win highest and best check out this article and video.
https://investfourmore.com/2014/01/06/win-multiple-offer-situation/
What about escalation clauses?
Sometimes a buyer will include an escalation clause. It usually reads something like this:
The buyer will raise the price of their offer by $1,000 more than the next highest offer up to a price of $215,000. The seller must provide the buyers with the next highest offer.
Many buyers and agents think an escalation clause gives them an advantage over other buyers, but I love them as the seller. When a buyer writes an offer I do not have to agree to anything in it, until I sign it. The buyer just told me their highest bid. I can counter that offer at $215,000, say I am not agreeing to show them other offers and get a higher price.
If a seller accepts an escalation clause without countering it can cause many problems.
- Providing info on other offers may be against privacy laws.
- If you accept one offer with an escalation clause, you should tell every buyer they can have that clause and that can cause chaos.
- If there are closing costs involved or other differences in the contracts, it can be tough to figure out what the escalation clause really means.
One of my agents was just involved in a nasty situation with an escalation clause that almost went court. I warned him about accepting it, but it was a weird estate situation where he did not want to counter.
Hope this helps some of you out there, and if you have questions I will try to help!
Sell your house not to an agent, sell it peer to peer with cash.
Surprise you didn't add earnest money to the list. In reality, the contracts are so easy to get out of in SC (with due diligence periods) that it isn't concrete but it does show the buyer is stronger financially and the buyer's agent is more willing to make the offer as strong as they can.
Offers are easy to get out of here too. Maybe if there was no inspection and higher earnest money. I rarely see that.
Good article. resteemed.
Thank you!
I wasn't aware that you could share information about an offer having an escalation clause. I have never lost a bidding war using one and kind of thought of it as a little known document, that made me a better realtor. I still feel a little uncomfortable about sharing that information on the selling side because you are hinting where there price is (most likely above asking price in the current market). I do imagine that it would get you a few thousand more out of the house if you have competing escalation clauses though.
I think a lot depends on your market. We see escalation clauses here all the time.
Ah, the “problems” a seller should have: Multiple offers, escalation clauses in contracts, no financing contingencies, “as-is” takers…
The wanders of a rising market.
I’ve been through several cycles. Enjoy this environment and sell into strength. Make a contingency plan for when the market turns.
Flips and flippers are a net positive in my opinion.
They upgrade the dilapidated housing stock in a neighborhood.
People with low down payment don’t have money to buy low and rehab, so they buy flips that are already upgraded. So, flippers actually provide entry level opportunities.
The fact that banks and government watchdogs don’t particularly like flippers and say they “pray on the poor” is proof that they are doing a good thing. The problem is that, just like with cryptocurrencies, the “wrong people are getting rich”.
I have been doing this for 16 years or so. Been through a cycle or two. Definitely have to be careful! It is funny how many people try to stop flipping when we do exactly as you say. Improve houses and neighborhoods.
Great information friend
thank you
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Nice give some tips i am new
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