There’s been a lot of talk around the office lately about “Highest and Best“.  What was originally used an appraisal term is now a trending topic in the foreclosure world. When prospective home buyers put in offers on a bank-owned property and the bank responds by asking for “Highest and Best”, what exactly does it mean? Is “Highest and Best” a tactic used by the banks to raise the prices or is it a useful tool banks use to decipher which bid to accept?

Glenn Marlin, Realtor and member of The Reeves Team defined “Highest and Best” as the “final offer” a buyer will put in on a house.  “Typically, the bank will use a “Highest and Best” in place of responding to multiple offers.”

In speaking with Justin McHood from the Arizona Mortgage Team, he defines “Highest and Best” to mean the offer that has the most amount of money in it with the least amount of contingencies. For example: 100k offer in cash, no contingencies may be better than a $102,000 offer for buyer who is getting a USDA loan and has to sell their current home first.  “Highest” is easy to define — the most $$$.  “Best” is more qualitative — the owner has to put a dollar amount on the amount of contingencies the buyer is putting in the deal.”

So, what should you, as a potential home buyer, do when you put in an offer on a bank owned property and they respond with a request for “Highest and Best“?

  1. Decide if you truly want the property.
  2. If you don’t, now is the time to (have another) talk to with your REALTOR.
  3. If you do, now is the time to decide how much you really want the home.
  4. Submit your “Highest and Best” offer.
  5. Be patient waiting for the bank to respond.
If you are notified that the bank has accepted your offer, it doesn’t necessarily mean yours was the highest offer.  It may be that your offer was the best offer for the bank (least amount of contingencies, etc).  The process of “Highest and Best” is sometimes likened to a silent auction.  In the case of a bank owned home, prospective buyers are only privy to the listing price (which is set by the bank) and not what the other offers include.  Sadly, if you think about it, even eBay will show you what the other bids are, so you can intelligently make an informed decision.

Is it a game?  Is “Highest and Best” in the best interest of all parties or merely a tactic to squeeze more money into a flailing industry?  Either way, it’s up to you as a prospective home buyer to decide if you want to participate, buy an REO property or walk away.  You decide.

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