Highest and best offer: How to win the house you want

It's not easy to buy a house in today’s hot market. According to this report in 2023 from the National Association of REALTORS^® (NAR), the average home had nearly three offers by the time it was sold.

With these conditions, homeowners may be looking for potential buyers to give their highest and best offer. This is when they challenge home buyers to come forward with the best price and terms. In those instances, you could find yourself in a bidding war with other home buyers.

Let’s take a look at how a “highest and best offer” bidding process works as well as how it differs from best and final offers. We’ll also discuss various ways to make your offer stand out from the rest when buying a house.

What does highest and best offer in real estate mean?

A highest and best offer request is usually made when a seller has received multiple offers on their home and asks all prospective buyers to submit their most attractive bids within a specific time limit. Once the seller has received all the offers, they will review them and pick the best one.

It’s important to note that there are really two separate pieces to this. Sellers, of course, want to see your highest offer in order to get as much money as possible out of the sale.

However, they also want your best offer. Although how much money you offer is a big piece of that, it’s not the only consideration. Sellers also want certainty. The second-highest bid in terms of dollars could win if it has fewer contingencies or there are better terms associated with the sale like flexibility around moving dates or offering a certain amount above the appraised price.

Highest and best vs. best and final offer

Another method sellers use to make a quick sale is to call for a buyer’s “best and final offer,” which gives buyers one shot to make an offer that satisfies the seller’s wants. A best and final offer will yield the highest bid and have the fewest conditions inhibiting a sale.

This is different from the highest and best offer strategy, because with the highest and best offer, you’re still inviting room for negotiation. When they have multiple bidders in the highest and best offer scenario, the seller may try to play buyers off each other.

When home sellers ask buyers to make their best and final offer, they're asking someone to come to the table with the highest price they’re willing to pay on the most favorable terms, and remove the back-and-forth. It’s worth noting that one of the places where you might see more best and final offer scenarios is an urban area. Residences near restaurants, attractions and public transport that might attract people to the city often tend to be in limited supply and there can be heavy competition.

Why does a seller use a best and final offer strategy?

There are a few common scenarios where a seller and their listing agent might ask for the best and final offer from prospective buyers. Let’s briefly touch on them:

• The seller wants to speed up the selling process. Asking for a best and final offer signals that a seller isn’t interested in a prolonged negotiation. They want everyone to make the offer by a certain date and time, so they can pick the best one in their eyes.
• The seller is trying to handle a multiple-offer situation. Rather than going between several buyers and negotiating separately, sellers sometimes want to just get the best and final offers from the remaining buyers in a bidding war after a certain point.
• The seller’s agent wants to start a bidding war. The seller’s agent may want to see if they can drum up enough interest to start a bidding war for the home by asking for someone’s best and final offer. This can be an effective strategy when there are fewer homes available for buyers, i.e., a seller’s market.

How to win highest and best offer scenarios

When facing multiple offers, highest and best or otherwise, there are certain strategies you can adopt to tip the odds in your favor. Getting chosen in a multiple-offer situation isn’t easy, but these tips can help you to make a winning offer.

1. Don’t overbid (or bid against yourself)

To begin, you want to bid enough to win without going over your budget and forcing you to pay for an overpriced house. You also don’t want to get into a situation where you’re bidding against yourself by making an offer that you and your real estate agent are sure no one else could match.

2. Make an irresistible offer

There’s no doubt that the purchase price you’re offering has to at the very least be competitive with the other offers being made. However, it’s certainly far from the only thing that matters. There are other ways to make your offer stand out.

You can do this by working with your buyer agent to communicate with the listing agent and determine what’s most important to the seller to prevent the deal from falling through. Here are a couple of examples:

Have a mortgage preapproval letter

Little else makes you look like a serious buyer than a mortgage preapproval letter. This demonstrates to a seller that you have initial approval for a mortgage and will commit to making the sale happen.

To get preapproved for a mortgage, you’ll need to submit documentation validating your identification, income and assets, which can include bank statements, pay stubs and tax returns.

Waive contingencies

Sellers value knowing that they will get to the closing table, and you making a no-contingency offer can make that a stronger possibility for them. While you can and should get a home inspection, in a particularly hot multiple-bid scenario, you may decide to waive your inspection contingency and give up the right to walk away if something is wrong with the house. However, it’s important to consider what the long-term costs could be should repairs be needed that you weren’t aware of because you did not have an inspection conducted.

Similarly, if you’re getting a mortgage, you’ll be required to get an appraisal because the home is collateral for the loan. However, if you’re comfortable with your financial situation and really want the house, you might waive the appraisal contingency and guarantee to bring the difference between the appraised value and the purchase price in cash.

Make an all-cash offer

Since many sellers want to close the sale quickly, they’ll typically favor all-cash offers to move the process along. When making a cash offer on a house, you still need to show proof of funds, which you can obtain from your bank. Just make sure you’re not depleting your finances too severely with a cash offer, as you still need to afford all the additional expenses like insurance, taxes and utilities.

Leave a sizable earnest money deposit

If you can’t make an all-cash offer, you could instead make a generous earnest money deposit on the house. This deposit tells a seller you’re really interested in the home, since if a buyer backs out of the sale, the seller can still keep the deposit. In many cases, a seller will favor a lower offer if the buyer leaves a larger earnest money deposit.

Be flexible with closing

If the seller wants to move quickly and needs to be closed by a certain date, your flexibility could help you win in this scenario. The same goes if the seller needs more time in the home. If you show you’re willing to work with a seller’s timeline, you can give your offer the boost it needs to win the home.

3. Send your response immediately

When the buyers find a house they want, they should make their offer as soon as they can. It shows that they’re serious. On the other hand, an offer that comes in past the deadline will probably be rejected. Sellers have timelines, so it’s a good practice to act fast.

Make sure you know what your top-end offer is based on your budget and the market for the home. Additionally, you should stay in constant contact with your real estate agent. They act as an invaluable go-between in negotiations and a source of market knowledge.

4. Remember the escalation clause

If you’re worried about being outbid, but you also don’t want to overpay by betting against yourself, an escalation clause could be the answer. An escalation clause says you’ll go X amount over and above any higher offers a seller might get up to a level that you set.

Let’s say you’ve put an initial offer of $450,000 on a house. In order to protect yourself in a potential bidding war, you’ve said that you’d go $5,000 over any other offer up to $480,000. For instance, if someone bids $460,000, you’ll bid $465,000. In this way, you’re putting your best foot forward, but you’re not overpaying if there are no other offers. It’s a good idea to consult with your real estate agent on the suggested budget and the level of escalators.

5. Keep it professional

Though it was previously common to write a buyer’s letter to a seller, many real estate agents may advise sellers against reading these letters. Agents feel sellers may be drawn to buyers with a good story that reminds the seller of themselves and may inadvertently take a less favorable deal out of sympathy. There’s also the possibility that this leads to a form of unintentional discrimination, which can potentially open the seller up to legal issues.

If you choose to write a letter, make sure to keep the tone friendly but professional. Say how interested you are in the house, but don’t go too in-depth with personal details.

You can also use that letter to highlight the strengths of your offer, like your purchase price or the fact that you’re willing to put down a larger earnest money deposit compared to a competing offer. Also, mention any contingencies you’re waiving or concessions you’re making.

7. Get documents ready

It’s a prerequisite in many markets to have your financing lined up with a mortgage lender before making an offer. If you have one, submit your preapproval letter (or better yet, a Verified Approval Letter) with your offer as proof of funds. You should also have in mind the offer you’re going to start with and the top line of your budget.

It’s important to edit your preapproval letter to only show what you’re willing to put in on the offer. They don’t need to know how high you’re going to go out of the gate unless it’s a best and final offer scenario.

8. Prepare to move on

In the heat of the bidding war, it can be difficult to know when to back out of buying a property. Emotions run high in the moment, and it can be easy to get overwhelmed. Know your top line and how much you’re willing to concede in advance because it will be easier to avoid crossing the line in the sand at that point.

If you do intend to withdraw from a bidding war, communicate this through your real estate agent. You can also put in a backup offer to be next in line in case the original offer falls through and you’re still looking for a home. At the same time, don’t wait around hoping for something that might not happen. If you find another house you like, don’t hold back.

Can you make a counteroffer after a final offer?

A buyer can sometimes counter after a final offer as long as no contract has been signed. It all depends on the market conditions, which could make this method a little complicated and sometimes risky. Depending on the market, countering after a “final” offer could work to your advantage.

Making a counteroffer a few days after the final offer was presented allows the buyer and seller to reopen negotiations and improve the terms of the deal. It's important to know that once the buyer accepts an offer and signs the contract, they can’t make a new offer – the offer is then legally binding. Counteroffering days after the final offer may not be a viable strategy in a seller’s market where homes are selling faster than buyers can find them.

Your real estate agent can help you determine how to negotiate the best offer with your seller regardless of the market.

The bottom line

When structuring your highest and best offer, it’s not all about price. Sellers want certainty and flexibility. Sometimes waiving certain things like contingencies and giving sellers more time to move out can put you over the top. You should also be prepared to use an escalation clause in a bidding war and have your finances in order. A real estate agent can help you through the intricacies here.

Want to make your offer stand out from the rest? Start an application today for initial mortgage approval.