There are signs that the housing market is easing off the record-high prices it’s seen during the past few years, but bidding wars for homes are far from over—especially in competitive markets. And the difference between landing your dream home and going back to square one can come down to something as silly as minor misunderstandings or misinterpretations of real estate lingo.
Take, for example, the subtle difference between the terms “highest and best” and “best and final,” which are used to describe the types of offers a buyer makes on a house. Many home sellers are asking buyers to submit one of the two types of offers in anticipation of—or amid—a bidding war.
Are you sure you know the difference between these two types of offers? Read on for the definition—and for savvy tactics from real estate experts—so you can put your best foot forward and land the home you have your heart set on.
What does ‘highest and best’ offer mean?
When sellers ask for a buyer’s “highest and best” offer, they’re typically trying to spark a bidding war and plan to play potential buyers off one another.
“When I see a seller asking for ‘highest and best,’ I read that as code for the seller wanting a firm final number for price and great terms,” says Melissa Dorman, a real estate broker with Living Room Realty in Portland, OR.
It often also entails accepting a home as is, which leaves little wiggle room for negotiations after an offer is accepted.
What does ‘best and final’ offer mean?
A request for a buyer’s “best and final” offer means the seller wants to move fast and is not interested in prolonged negotiations.
“When I see a seller asking for ‘best and final,’ it means they are not planning on pitting buyers against each other,” Dorman says. “They want to give everyone an equal shot and end—or avoid—the bidding war.”
Strategies for a ‘highest and best’ offer
Winning a bid amid stiff competition—without regrets later—is no easy task, but it can be accomplished with a firm plan in place.
“Buyers should ask their agent to garner as much detail as possible about the offers already received during ‘highest and best’ negotiations,” says Ian Katz, a licensed real estate broker with Compass in New York City. “They should find out what the seller deems most important in a winning offer aside from price. It’s always smart for a buyer’s agent to find out what will get the deal done in these situations.”
For example, will the seller be requiring a rent-back agreement after closing, meaning that the buyer won’t be able to move into the house right away? Or is the seller eager to unload the home and looking for a buyer who’s able to make an offer with a quick closing of 30 days or less?
Gregg Cantor, president of homebuilding and remodeling company Murray Lampert Design in San Diego, insists that “cash is king” and can often seal the deal, even if other offers are slightly higher.
If cash isn’t an option, he recommends including a pre-approval letter from a bank—and staying relentlessly upbeat.
“Don’t bring up any issue about the home before the offer is accepted,” Cantor advises.
Strategies for a ‘best and final’ offer
For “best and final” bids, Glen Henderson, a broker associate at Premier Homes Coronado in San Diego, recommends using an escalation clause.
An escalation clause is when buyers offer a range of prices and say they will beat any other competing number by, for example, $5,000.
“You can outline how much you’re willing to pay over the highest offer,” Henderson says. “If you have a cap you don’t want to exceed, you can say you agree to pay $5,000 above the highest verified offer, not to exceed whatever your upper limit is.”
Kelly Edwards, a real estate agent at Compass in Los Angeles, says one strategy she’s seen work again and again is simply “having an offer stand out.”
“Instead of offering $470,000, why not offer $470,427,” Edwards says. “It can really help you stand out.”
Edwards also recommends other more mainstream—and usually successful—tactics, including paying closing costs, waiving certain contingencies, forgoing inspections, and “asking to be put in first position” (essentially, putting yourself on the seller’s waitlist) in case their accepted offer doesn’t work out.
In the end, buying a house—even one you feel emotionally tied to—is a business decision for both parties. Put your best foot forward, be prepared, and, if the first few homes don’t work out, try not to take it personally.