Mortgages & Creative Financing

Highest and Best Short Sale Offers – Is there such a thing?

79 Articles Written
highest and best offers

Several years ago, I read an article on one of the real estate websites entitled “Highest and Best Are Not Synonymous.” The title says it all: the highest offer is not always the best offer. While this has always been true, in the distressed property market it is vital for all parties to the transaction to consider the fact that the highest one probably is NOT the best one.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Other Factors to Consider Outside of Price

In simple terms, although the highest offer may seem great, there may be terms and conditions that are not in the best interest of the seller. Hence, the seller needs to carefully weigh money vs. some of their personal concerns. For example, many moons ago, my husband and I listed our first home with a local agent. We received a handful of offers: one was all cash (and highest) yet the buyer wanted the offer to be contingent upon the city's permission to install a larger septic tank, so that the home could be remodeled to include more bedrooms and bathrooms. We knew that this was a risky venture. What would happen if the city said ‘no' that they would not permit the installation of the larger septic system? That extra $10,000 would not have been worth a dime because the offer would never get further than the table! It is situations such as the one I describe that demonstrate that highest is not always best. Sellers and their agents need to consider all aspects of the offer before making a decision.

Now, with regard to short sales, the offer that is the best is clearly from a buyer who is serious, who is willing to stick around, and who is willing to accept any changes to the terms and conditions that have been dictated by the bank. So, this means that the cash buyer may not be the best buyer. A cash buyer is not tied to a loan and can generally make quick decisions—such as the decision to move on. In the case of distressed properties, ‘best; was determined as the person who would be willing to wait and accept the lender’s terms and conditions.

Novice agents, homebuyers, and home sellers sometimes forget that highest and best are not synonymous. So, the next time you are out looking for property, keep in mind all of the considerations involved when presenting your highest and best.

Photo: flickr creative commons by Ian Mutoo

    Craig Yace
    Replied over 8 years ago
    Melissa… You are so right! I’ve found that, with short sales, the seller often checks out, so this hasn’t been much of a challenge for me but with the equity sellers… geeze… good luck getting them off the highest price for the best offer. Something else I found, with short sales, is that they are not always the best deal for the buyer. You’ve gotta know values when making an offer on short sales. The short sale bank is trying to get the most for their investor and that doesn’t necessarily mean “at market”.
    Replied about 8 years ago
    When a real estate agent is referring their short sales to me and taking care of all the negotiations, can the seller accept my offer before putting the property on the mls? Or does the property need to be listed a certain amout of days before accepting an offer?
    Replied over 7 years ago
    A seller can “accept” any offer, any time, if it’s a short sale type sale or listing. Unfortunately, the seller is barely a party to the whole process and the “acceptance” is nothing more than “sure I’ll take your price, but it’s subject to my lender(s)’ willingness to let go of the mortgage(s) that are owed by me against the property for the net amount that you are offering to pay for it”. No seller in their right mind will “accept” an offer that’s substantially less than what is owed against the property unless their lender(s) agree to discount the payoff amount with the sale. Frankly though, it benefits a seller to allow his property to get maximum exposure before accepting the first offer on a short-sale. Logic dictates that the higher the offer (and net to the lender) the better chance the offer has of being approved by the lender under a short-sale. Plus most lenders want to see that the property’s had sufficient time to be exposed on the market before assuming that the offer they’ve received is likely the best they’ll get–at least in the foreseeable future.
    Susan D
    Replied over 7 years ago
    Hi everyone We’re a cash & close and are waiting for a highest and best conclusion. I took the liberty to write the owner telling her we know the process is a crawl and nail bite, but we want the house, and we will wait it out. One thing about cash is we are a non-risk. Last buyer bailed, and our prior offer and his was $5K difference. This time, we looked up some data points. We know that in a non-recourse state such as California, the bank is trying to recover 60-65% of the excessive loan balance. One this home it is a first. We are $80K ish over that amount, and are probably less than 10% under the market value of a flip that is in perfect shape that just went out a few months back. This short sale needs work. We love the house and went with a short escrow, telling the owner she can get her short sale incentive quicker with us, and inspection will be quicker. We are truly in love with the house. We are willing to over pay. I could not believe the youth of other bidders, making parents move in so they can afford the home. I mean, what a bunch of entitlement kids and their idiot parents. Way too many people looking to buy, who should stay renters. Our 1st home at 10% was earned. These low interest rates and bring out fools again. Cross you fingers for us. I’ll tell you the ending on Friday….or actually the beginning of a horrific journey….