Foreclosure, Real Estate, Short Sales

The Problem With “Highest and Best” Offers

Pitfalls of Highest and Best Offers

The Fredericksburg area real estate market is definitely heating up.  With a hopping real estate market comes less inventory, multiple offers, and more competition.  Today’s housing inventory is moving fast, and buyers need to be wary of writing offers they may not be able to close. 

It’s 2012 and banks are getting wise to pricing and negotiation tactics.  Banks are also sick of hemorrhaging money and need to find a way to stop the excessive bleeding.  A not-so-new tactic for pricing properties has emerged, list it low – sell it high.  Yes, sellers are actually listing their homes at low prices in hopes of garnering multiple offers and creating a bidding frenzy, thus increasing the sales price.  This is wreaking havoc with buyers and buyer’s agents.  After several years of properties being listed at reasonable prices, buyers are falling for this marketing trap.  They see a home listed for $260,000, fall in love with it, write an offer, only to find out there are 6 other offers and the seller now wants the “highest and best” offer.  Keep in mind, this is not just a bank tactic, but short sale sellers and traditional sellers are now playing this game.  

If a buyer is making a decision based on their emotions, they may be tempted to bid higher, even higher than proven market value (recent solds in the area).  This can lead to some pretty serious problems.  If a listing is a short sale, the offer the seller accepts may not be an offer the bank is willing to accept.  A property may be listed at $260,000, gets a ”highest and best” offer of $285,000, and the bank comes back and says they will only accept $295,000 to allow the short sale.  That’s a $35,000 difference between the list price and what the bank will accept.  Or, what if the bank accepts the $285,000 price and then the appraisal comes in at $275,000.  How is the buyer going to make up the difference or do they really expect the bank to lower their expectation… that the buyer set by offering such a high sales price. 

This is a foreclosure problem, as well.  Many banks are now making buyers who write offers over list price sign an addendum that states the buyer is responsible for any difference in contract price and appraised value.  But wait, the bank listed the foreclosed property at a low price in hopes of getting higher offers.  And, the bank put the perspective buyers in a “highest and best” situation.  Yes, yes they did.  The bank is trying to mitigate loss.  Your high offer is helping them do just that.  (Also, please pay your taxes so banks can get more bail out money).   

Ultimately, it is the buyer’s responsibility to make sure they are writing offers they can follow through on.  It is also the buyer’s responsibility to make sure their offer price is within market value and that the home will meet lending guidelines.  A good buyer’s agent will walk you through the pitfalls of “highest and best” offers.  A great buyer’s agent will help you decide if you are even eligible to play this high stakes real estate game.

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