What’s the difference between highest and best in a purchase offer?

You often hear the term “Highest and best offer” when listing agents reply to buyer agents in a multiple offer situation.
So what’s the difference?
The “highest” part is obvious. That’s the purchase price listed at the beginning of the offer.
But of course, that purchase price often doesn’t translate into the most money in a seller’s pocket after all is said and done. A number of contingencies can eat into those dollars, so there may be times when the lowest offer actually nets the seller the most money.
What contingencies prevent an offer from being the best?
  • A buyer’s request for assistance with closing costs.
  • A request for an allowance to replace flooring, a furnace, etc.
  • A high dollar amount for repair requests following an inspection.
  • A request for seller-paid inspections.
  • A request for items to be included – things like a riding mower or detached hot tub.
Each of these items directly reduces the dollars coming to the seller at closing, but they aren’t the only contingencies that can prevent an offer from being seen as the “best.”
Consider the closing date. This will matter a great deal to some sellers – especially those who are making payments on a house they no longer occupy or are waiting for a closing so they can purchase a home in a new location. The sooner the closing, the better it looks to them.
Then there’s the appraisal contingency. While buyers with low down payments must make their offers contingent on the appraisal, those with high down payments and/or extra money in the bank can go forward whether or not an appraiser agrees with their purchase price.
Financing also plays a role. A seller might well accept a slightly lower offer from a buyer who is purchasing with his or her own cash than from a buyer who must obtain a mortgage loan.
If you want the house – give it your best shot.
When searching for a home in a seller’s market, you’re very apt to be facing competition.
So make your first offer a good one – and if the agent calls for your “highest and best,” do realize that you probably won’t get a 3rd chance.  Instead of a counter-offer, a “less than best offer” may well result in a rejection.