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.
1. 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.