Confused "Highest and Best Offer"
Stormville, NY · Member since 2018 · 38 posts · 12 votes
Confused "Highest and Best Offer"
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7yOriginally posted by @Bill Dengler:
@Russell Brazil - So are you saying the bank basically didn't get what they were looking for when the stated Highest and Best offer and are now trying to negotiate to see if they can get closer to what they are looking for?
Exactly. They have the number they are willing to sell for. Until someone pays them that number, they are going to continue to market the property and solicit offers and counter existing offers. It really isnt any different from any other sale. A seller wants X, and typically will not sell til they get X.
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- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes7y@Nathan Hall because the best offer is too low. Im not sure why that would be counterintuitive? Would you sell your house or car to someone who offered you less than you were willing to sell it for?District Invest Group545 Reviews
- Member since 2018 · 19 posts · 14 votes7y
Your first mistake is trying to use common sense to predict what a bank might do in regards to an offer on a REO. Asset managers and most of the agent's I've dealt that represent banks have any sort of strategy they employ on a deal, they seem to just make things up as they go. They tend to ignore the buyer's purchasing ability and merely go for a higher price. Another couple pieces of advice if you find an exceptional deal, try to do all the due diligence and inspections you want to do before making the offer and waive the inspection period. Banks hate it when you try to grind anything out of them after the contract. Also, I try to put down enough earnest money to cover the down payment to show my buying power and ability to secure financing up front. One last point is just because the bank accepts someone else's offer, it's not time to give up yet. I've closed several deals after two or three executed contracts fell through due to to the seller. I forgot who said it, maybe Brandon, but you either want to make to first offer the bank sees, or the last.
- Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes7y
You can’t control what the bank (or really any seller will do). Just stick to your number. For all you know, you’re bidding against yourself. I’ve told sellers before when they’ve come back asking for “highest and best” that they already have it.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes7y
I think the thread has imparted the fact that the terms "highest and best" and "multiple offers" are used often by all sorts of sellers to get more money out of buyers. They may be true, they may not. If it's your first time hearing the term "highest and best," your natural inclination is to believe that the seller is telling the truth. You natural inclination would usually be wrong, at least in how I've come to understand the REO sales I've been involved with this.
@Jay Hinrichs made an important point here that I'd like to expand on with this -- an institutional seller is not a private individual seller, and in REO sales, the institutional seller is typically really a whole loss mitigation department and the face of it, the real estate agent pushing the sale through, simply has to follow the orders that come from them. And the orders may be coming from a bizarre playbook that you couldn't possibly understand the reasons behind, not because you're unintelligent but because institutions are, well, institutions.
I'm going to try to work through a very simplified scenario of how this might work to demonstrate how absurd the internal criteria you're up against might be.--------------------------
Let's say ACME bank has REO portfolios in three states, New York, Connecticut, and Massachusetts. Let's say the overall loss mitigation director has let it known that he's retiring next year. Let's say the NY REO portfolio manager is gunning for his position, but he believes he's in heavy competition with the Connecticut REO portfolio manager. The Mass guy doesn't have a Carvel cake's chance in hell, everyone knows this.It's December. Let's say that the Connecticut manager was assigned the yearly task of getting a minimum of 328 properties off his books and the NY manager was told to get 518 off his books. The NY guy knows the Conn guy has done 376 sales (exceeding his quota by 48 sales, or 14.63%)and has done so with losing 78.8% of the original value of the defaulted mortgages of those 376 properties. The NY guy has done 526 sales (only exceeding his quota by 1.54% but only losing 72.1% of the original value of the defaulted mortgages).
Again, it's December. The big end-of-year meeting is coming up when the NY manager will be sitting eight chairs down from the bank's COO on the left side and the Conn manager will be sitting directly across from him on the COO's right side. The retiring loss mitigation director is only two chairs down from the COO on the left side.
The NY guy knows he's out of time, and his total sale numbers are not going to look as good as the Conn guy's, no matter what he does. His only chance of still getting this job he wants next year is to focus attention on his retention of value for the bank. That 72.1% number is all-important to getting a shot at the overall loss mitigation director's position. 72.1% is the difference between staying at his pedestrian formica-laminated desk and putty-colored metal filing cabinets and being about to move to a corner office on his floor and order an actual wooden desk and fake woodgrain-finished metal filing cabinets out of the special internal supply catalog. And the corner office he's been coveting for the last six years has LED tracklights, not the nasty fluorescent troffers that highlight the little pale marks under his eyes left by the stupid eyeshields at his favorite tanning salon.
Then along come you and your broker, Bill Dengler. Explaining why the property is worth 345K and not 361K. Basing your reasons on something as useless as logic in this scenario. At a moment the NY manager has to protect that 72.1% and not let it slip to 72.05%! How dare you apply logic to bank politics? How dare you tell this man he should do anything at all to minimize his chance at the LED tracklights?
He's been sharing an administrative assistant named Candice with Wilburforce from pension compliance for the last three years, and the director's position comes with an executive assistant. Candice brings in gas station donuts every Tuesday morning that the NY manager strongly suspects are day-olds, and Wilburforce gets in extra early and hogs the good Boston creme ones anyway. If the NY manager gets the director's job, he could have his new EA get pastries from that cute little place on Hitchcock three times a week...doesn't he DESERVE a fresh Hitchcock eclair, the chocolate still soft on top, with his coffee every Monday, Wednesday, and Friday?--------------------------
There ain't no clarity to be had, Bill. There's a corner office and wrinkled donuts and Candice with the dark roots in her hair and the annoying mole on Wilburforce's left cheek.
I would stick at 345K.
If you get the property, good. If you don't, you're never going to really understand all the factors behind the decision, and you'll have to be OK with that and all the other inane institutional stupidity that swirls around REO sales as a matter of course. - 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jim K.:
I think the thread has imparted the fact that the terms "highest and best" and "multiple offers" are used often by all sorts of sellers to get more money out of buyers. They may be true, they may not. If it's your first time hearing the term "highest and best," your natural inclination is to believe that the seller is telling the truth. You natural inclination would usually be wrong, at least in how I've come to understand the REO sales I've been involved with this.
@Jay Hinrichs made an important point here that I'd like to expand on with this -- an institutional seller is not a private individual seller, and in REO sales, the institutional seller is typically really a whole loss mitigation department and the face of it, the real estate agent pushing the sale through, simply has to follow the orders that come from them. And the orders may be coming from a bizarre playbook that you couldn't possibly understand the reasons behind, not because you're unintelligent but because institutions are, well, institutions.
I'm going to try to work through a very simplified scenario of how this might work to demonstrate how absurd the internal criteria you're up against might be.--------------------------
Let's say ACME bank has REO portfolios in three states, New York, Connecticut, and Massachusetts. Let's say the overall loss mitigation director has let it known that he's retiring next year. Let's say the NY REO portfolio manager is gunning for his position, but he believes he's in heavy competition with the Connecticut REO portfolio manager. The Mass guy doesn't have a Carvel cake's chance in hell, everyone knows this.It's December. Let's say that the Connecticut manager was assigned the yearly task of getting a minimum of 328 properties off his books and the NY manager was told to get 518 off his books. The NY guy knows the Conn guy has done 376 sales (exceeding his quota by 48 sales, or 14.63%)and has done so with losing 78.8% of the original value of the defaulted mortgages of those 376 properties. The NY guy has done 526 sales (only exceeding his quota by 1.54% but only losing 72.1% of the original value of the defaulted mortgages).
Again, it's December. The big end-of-year meeting is coming up when the NY manager will be sitting eight chairs down from the bank's COO on the left side and the Conn manager will be sitting directly across from him on the COO's right side. The retiring loss mitigation director is only two chairs down from the COO on the left side.
The NY guy knows he's out of time, and his total sale numbers are not going to look as good as the Conn guy's, no matter what he does. His only chance of still getting this job he wants next year is to focus attention on his retention of value for the bank. That 72.1% number is all-important to getting a shot at the overall loss mitigation director's position. 72.1% is the difference between staying at his pedestrian formica-laminated desk and putty-colored metal filing cabinets and being about to move to a corner office on his floor and order an actual wooden desk and fake woodgrain-finished metal filing cabinets out of the special internal supply catalog. And the corner office he's been coveting for the last six years has LED tracklights, not the nasty fluorescent troffers that highlight the little pale marks under his eyes left by the stupid eyeshields at his favorite tanning salon.
Then along come you and your broker, Bill Dengler. Explaining why the property is worth 345K and not 361K. Basing your reasons on something as useless as logic in this scenario. At a moment the NY manager has to protect that 72.1% and not let it slip to 72.05%! How dare you apply logic to bank politics? How dare you tell this man he should do anything at all to minimize his chance at the LED tracklights?
He's been sharing an administrative assistant named Candice with Wilburforce from pension compliance for the last three years, and the director's position comes with an executive assistant. Candice brings in gas station donuts every Tuesday morning that the NY manager strongly suspects are day-olds, and Wilburforce gets in extra early and hogs the good Boston creme ones anyway. If the NY manager gets the director's job, he could have his new EA get pastries from that cute little place on Hitchcock three times a week...doesn't he DESERVE a fresh Hitchcock eclair, the chocolate still soft on top, with his coffee every Monday, Wednesday, and Friday?--------------------------
There ain't no clarity to be had, Bill. There's a corner office and wrinkled donuts and Candice with the dark roots in her hair and the annoying mole on Wilburforce's left cheek.
I would stick at 345K.
If you get the property, good. If you don't, you're never going to really understand all the factors behind the decision, and you'll have to be OK with that and all the other inane institutional stupidity that swirls around REO sales as a matter of course.you also never know where their PMI insurance comes to play in all this.. that's why you see homes that are worth 80k to go auction for 150k.. bank is going to make a PMI claim .. but the man/women on the street just thinks the bank is crazy.
- Member since 2018 · 1 post · 0 votes7y@Bill Dengler Brandon turner talked about a strategy where you resubmit that same offer once/twice per week. The only thing you change on the paperwork is the date. If you really are the only serious buyer the bank realizes they are rejecting a serious buyer over and over they may eventually accept it.
- Stormville, NY · Member since 2018 · 38 posts · 12 votes7y
@Jim K. - LOL ... thanks for the long explanation. I understand highest and best offer. I just never dealt with a bank foreclosure before. Yes I was ignorant for thinking the banks would work the same way a private sale would work. Im not sweating over it. I am sticking to my price. If I don't get it, thats fine. I will move on to the next. It's all a game and Im like most people, I like to win.
@Charles Connolley - I get what you are saying, but I don't look at it as a mistake. I look at it as a learning experience. I will always try different tactics and re-evaluate as I learn. You always use common sense first to set the benchmark for unreasonableness. And thanks to you and everyone on BP, I have a thousands of experienced individuals that are kind enough for me to pick their brains.
Thanks everyone for taking the time to respond to this post. As I hoped, you opened my eyes and gave me some insight. I am going to just keep my offer what is and see what happens. I will post an update on what the bank decides to put some closure to this if anyone is interested.
@Charles Connolley - One last thing. The whole time this "Highest and Best" has been going on with the bank. I have a funny feeling I am bidding against myself as some others have stated. I don't think there are any other players at the table and the bank just wont go below $361k.
Also someone mentioned how long the foreclosure has been on the market and how that impact the price. Its now 37 days. And yes, the dropped the price once already on day 23. From $390k to $365k.
- Charleston, WV · Member since 2017 · 113 posts · 50 votes7y@Bill Dengler I’ve faced this 3 times on foreclosures and won 2 with my best and highest being my original bid. Both of those were full asking price with no contingencies. We inspected during our viewings and understood we were buying well under market value
- Investor · FL · Member since 2017 · 266 posts · 220 votes7y@Bill Dengler Its common. The question is do your numbers work at the price they came back with. If not then risk it, walk away and maybe when they re-list or put it back on auction you try again. Sometimes banks are willing to do habitable/safety repairs so if there is anything like that reach out to listing agent and ask. Maybe you can recuperate some of the difference there but it is a long shot. Good luck
- Stormville, NY · Member since 2018 · 38 posts · 12 votes7y
@Javier D. - They are not willing to do anything. They listed it AS IS and they have reminded us of that. I put in my best offer and Im just gonna stick with it.
- Member since 2018 · 19 posts · 14 votes7y
"There are multiple offers on the table so bring your highest and best offers by Friday" is 50/50 true/lie made by banks in my experience.
- Member since 2017 · 36 posts · 24 votes7y
I've always been given the advice (and believe it accurate) when dealing with bank owned properties assume you are replying to someone who's looking at a flip chart. IE: Listed at $X for 30 days; after 30 days lower it by X%. Offers must be withing X% of list to be considered.
The folks making the decisions (loss mitigation department at multinational banks or holding companies) have NO STAKE and could care less about anything personal or making the offer look good.
You're essentially dealing with a computer...
- 7yJennifer PetrilloPro MemberInvestor · Asbury, NJ · Member since 2015 · 226 posts · 205 votes
The only question to answer is how badly do you want this house? You said it is not an investment property, it is for you and your family. So only you can know what it is worth to you. Are you willing to lose this house over $16,000? We make embarrassingly low offers on our flips and simply walk away if they are rejected (until we make the same offer again a month later when no one has purchased the house!) But last year we made a generous bid on a short sale that we wanted for our own home. When the bank said there were other offers and asked for highest and best we made an even higher offer. Why? Because we didn't want to lose this house over 5 or 10K. Four months after making the offer we were told the bank accepted it. Did we spend more than we really wanted to? Yes. Would we do it again? Absolutely, for the dream home we are now in.
- 7yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes@Bill Dengler the bank is just doing what they can to get the highest price, they can be difficult
The Moorhead Team5140 Reviews - Stormville, NY · Member since 2018 · 38 posts · 12 votes7y
@Jennifer Petrillo - I have been watching this house for a long time. While it was being foreclosed, while it was in auction, up until the bank put it on the MLS. I like the bones/layout and love the location. I like the fact that has to be gutted and totally restored. But yes I am willing to loose it over $16k. A house to me is only a home with my family and any house can be a home when my family is together in it. A house is a nice to have object.
To me, a house is never a forever home.
Yes this house is technically not an investment because I want to have it as my house. But in 2 or 3 years that can totally change and I like to make sure I have some forced appreciation into the house. I like to keep my options open. I put my offer in. If it's meant to be, then it's meant to be.
The reason for the post was not about how high a bid should go. It was about "Highest and Best" offer by a bank owned foreclosure, which I never dealt with and after submitting the bank countered again. Again, not something I had happen before, so I figured I would ask the BP community.
But thank you for your comments and I am happy you found your dream home. I hope you and your family enjoy it for a very long time.
- Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes7y
@Bill Dengler Are you trying to say banks spontaneously change the rules when it benefits them?? That's crazy talk!
As a practical matter, I deal a lot with Auction.com properties and if you have a property you really want, be prepared to bid on it a dozen different times. They are required to bid it up to the sellers reserve and it can take months or maybe a half dozen auctions before the seller lowers the reserve. It's a game of persistence and waiting for them to lower their bottom line.
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 102 posts · 65 votes7y@Bill Dengler If you are still open to negotiation, sounds like that wasn’t really your highest and best... Don’t let emotion or personal attachment cloud your judgment. The numbers work or they don’t.
- Stormville, NY · Member since 2018 · 38 posts · 12 votes7y
Update for anyone who is interested. The bank came back with another counter offer. They came down to $355K and said they would like to work with me since I waived inspection. I told my agent to tell them I already put my highest and best offer in at $345k and that is final. It's two days later and it's still in review.
- Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes7y
Very interesting read shows to me how the current market is. The banks now don’t mind holding on to properties because of the money to be had.
So, the person in the cubical has a full-time job as a realtor /banker.
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