When a seller calls for Highest and Best offers, the highest offer may not be the best offer. Cash is king sometimes, but other factors come into play in a Highest and Best situation—net to the seller, timing of closing, and the least number of obstacles to successful closing.

dollar time1.  Bottom dollar: Whether it is a financed deal or a cash deal, the seller walks away with cash at the end of the transaction in all instances except contract for deed (seller finance), so the cash that is king is the offer which will result in the most money to the seller at closing. A cash offer which is significantly lower than a financed offer will result in a lower payout to the seller; and in that instance, the cash offer would not be the best offer.

2.  Date of closing: Time is money, so closing early is always a factor. Not only is the cost of holding the property important, but the longer the seller has to hold the property, the greater the risk that something will keep it from closing.

3.  Quality of financing: The method of finance which presents the fewest number of obstacles to closing is the preferred method. Conventional financing with a significant downpayment would be an easier closing than FHA or VA financing. A seller may be willing to accept a lower offer than to risk FHA or VA predications. (Predications are issues that come up during appraisal which must be repaired prior to close.) The quality of the buyer’s pre-approval or pre-qualification letter from the lender may come into play here, also. A lender who states that a credit check has been completed, for instance, has provided a stronger letter than one who merely “pre-qualifies” the buyer.

4.  Seller-paid concessions: Concessions, such as closing costs, lessen the final amount a seller will get. A no concession offer of $100,000 will net the seller more than a $102,500 offer with 3% concessions. Even if that were not the case, a no concession offer may be more attractive to a seller, because buyers who can pay their own closing costs are usually more qualified buyers and present less of a risk to the seller. Additionally, buyers who cannot even pay their own closing costs will often ask for additional concessions or repairs during the period from contract to closing.

5.  Inspections: An inspection contingency gives the buyer an “out.” The fewest number of “outs” for the buyer and the shortest duration for any “outs” is the best deal for the seller, so an offer that waives inspections would be attractive to a seller. Investors often win out over owner occupants by waiving inspections entirely or presenting very limited inspection timeframes, since they are prepared to make repairs and often do their own inspections prior to making an offer.

A cash deal with no contingencies and a short closing is, of course, what every seller prefers. Usually, however, all five of the above factors come into play.

Author note: In some sales of bank-owned properties, especially Fannie Mae, Freddie Mac, and HUD properties, owner occupant offers are given preference over investor offers. Those properties have a protected timeframe during which only owner occupant offers will be accepted. Beyond that timeframe, however, the buyer status is only one of the factors being considered.

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10 Comments on Cash is king—or IS it? How to make a Highest and Best offer that wins

JAN
11
2011
Hit Router

great post and you are right - cash is NOT always king
12:16am • #1
218,330 Points 13 Featured Posts Called Shot Master

Thanks, Susan!
11:08am • #2
JAN
12
2011
289,689 Points 6 Featured Posts Called Shot Master

Liz, I have to smile at this one.  My mother just recently got a "cash" offer on her house.  It was way low ball (even in this market) and the agent tried to push the cash offer as the reason for the low offer.  It's all cash to the seller!
4:58am • #3
218,330 Points 13 Featured Posts Called Shot Master

Yes, Kate~More often than not, a cash offer is less than a financed offer--especially when we are in multiple offer situations. While the cash offer may be a sure thing (surer, at least), it may not be worth an extra 10% of the property value; and it most certainly is not worth 30, 40 0r 50% of the value!
9:17am • #4
JAN
17
2011

I lost a couple of homes I was trying to buy and renovate because I didn’t know all that. Eventually I learned how to counter those cash offers with other goodies.
5:38am • #5
JAN
18
2011
218,330 Points 13 Featured Posts Called Shot Master

Russel~ A little known fact about a Fannie Mae house is that HomePath financing can pose fewer obstacles to closing than other financing, because the house does not have to face another appraisal. The buyer can use the appraisal that Fannie Mae already has. The HomePath deal can also close in the standard 30 days, rather than the 45 days that FHA would require. HomePath financing, then, could be more attractive to Fannie Mae than FHA, VA, or USDA.

In tight negotiations, even investors should consider HomePath finance when it is available.

Investors who "pre-inspect" and then forego inspections entirely may gain an advantage over the competition.
7:58pm • #6
JUL
05

Listen up. If someone is willing to overpay for a home, which will one day be underwater,

then let them. No one should throw out their money or the taxpayer's money because they

have no reasoning skills. There is no shame in renting.  This housing market is following the

Japanese model of lost decades and a controlled collapse.  Furthermore, there are formulas,

income to housing affordability formulas that dictate reasonable data points to consider when

purchasing a home. Overbidding is moronic.

 

I'm an Accountant, in the REIC, and also a CASH Buyer for a primary. We offered a sizable amt of list,

and evaluated the location, condition, and ramifcations of paying a extortion price.

 

Giving win at all costs to your financial security is bad advice, period. Fools are great

food for low moral real estate types.

 

Oy Vey!
Susan (Brain Owner)
3:28pm • #7
218,330 Points 13 Featured Posts Called Shot Master

Susan~ Your comments confuse me, because I don't believe they are germane to the discussion at hand. I re-read your comments, re-read my blog, and then re-read your comments. There is quite a disconnect between the two, so I don't know what to say in response. I did not advocate over-paying, nor did I advocate a "win at all costs" attitude. Clarifying what factors go into a highest and best decision is the purpose of the blog entry. Without being reckless, buyers can make their offers more attractive when they evaluate all of the factors.

_________________________________________

For the record, Susan's comments are copied below:

Listen up. If someone is willing to overpay for a home, which will one day be underwater,

then let them. No one should throw out their money or the taxpayer's money because they

have no reasoning skills. There is no shame in renting. This housing market is following the

Japanese model of lost decades and a controlled collapse. Furthermore, there are formulas,

income to housing affordability formulas that dictate reasonable data points to consider when

purchasing a home. Overbidding is moronic.

 

I'm an Accountant, in the REIC, and also a CASH Buyer for a primary. We offered a sizable amt of list,

and evaluated the location, condition, and ramifcations of paying a extortion price.

 

Giving win at all costs to your financial security is bad advice, period. Fools are great

food for low moral real estate types.

 

Oy Vey!

  
Susan (Brain Owner)
5:42pm • #8

"so an offer that waives inspections would be attractive to a seller."

Highest and Best is nothing more than a blind auction. You are better off at a real auction where you know the other bids.

I think this marketing gig of Highest and Best is morally low. Try it in Commercial!

 The loser in the Highest & Best Marketing Model is the buyer, period.

But, we can agree to disagree. Have a wonderful life. :)
Susan
8:27pm • #9
218,330 Points 13 Featured Posts Called Shot Master

Susan~Thanks for weighing back in. 

Investors are savvy buyers, and they are the ones who most often waive inspections. They usually have inspected the property themselves and are satisfied with their own opinion of the property's worth. I've also had buyers who brought along a contractor (sometimes a family member) to inspect the property before making an offer. In such cases, the buyer may choose to forego additional inspections. If writing that down helps their offer be stronger, it is a good thing. I'm not saying not to get inspections, but I am saying that waiving inspections is an option in some cases.

In regard to Highest and Best, it is not morally wrong for the owner of a property to conduct the sale of that property in whatever way they want. It is their right as property owners. The owner of a property owns it 100% and can dispose of it however s/he wants. Buyers who realize they are in competition for a property often welcome the chance to review and even to revise their offer. Far from being immoral, they view it as fair. The buyer who gets the property s/he wants is not a loser in this scenario. All buyer offers are, from the start, blind; because any given property can sell above or far below list price.

If you don't want to participate in Highest and Best, it's always your choice. Of course, you may not get the property you wanted. Again, that is your choice--just as the way in which the sale is conducted is the seller's choice. All property rights rest with the seller until the property is actually under contract. A would-be buyer can drop out at any point prior to that.

Did you lose a bidding war in a Highest and Best round, by chance? If so, when the property in question does close, it might be enlightening to see what the final sales terms were. If the property was listed in MLS, the sales price and finance type (or cash) probably will be, as well. In some markets (and in all markets when the property is priced aggressively), a Highest and Best round can result in a sale price that is above listed price. Any commodity is worth what someone is willing to pay in a competitive marketplace, so it could be argued that the list price was too low to begin with.

I am not advocating, just explaining how the process works.

______________________________________________

For the record, Susan's comments are copied below:

"so an offer that waives inspections would be attractive to a seller."

Highest and Best is nothing more than a blind auction. You are better off at a real auction where you know the other bids.

I think this marketing gig of Highest and Best is morally low. Try it in Commercial!

The loser in the Highest & Best Marketing Model is the buyer, period.

But, we can agree to disagree. Have a wonderful life. :)

  
Susan
9:04pm • #10


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Liz Lockhart,GRI, Cape Girardeau Real Estate

Liz Lockhart, Riverbend Realty broker/owner

Cape Girardeau, MO

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