The highest and best counter is the dread of many real estate investors. Well, perhaps not really dread, but they certainly aren’t particularly pleasant. They serve as a reminder of why it’s better to find a deal off-market than on the MLS or even through a wholesaler. That being said, we’ve had a lot of success buying off the MLS by simply making lots and lots and lots of offers. So dealing with highest and best situations is something we’ve become quite accustomed too. It’s just part of the life of a real estate investor, so it’s best to make peace with them and simply figure out how to deal with them.
The first step is simply to know where you’re at financially speaking and what your appetite is. Do you have a lot of money or investor funds to place? If so, it would be good to be a bit more aggressive. But if you’re a little tight right now or don’t have an investor lined up or perhaps you are a flipper who is in the middle of a project and not hugely keen on starting another one yet, don’t push on the deal. Just because it has gone highest and best doesn’t mean the other offer is strong. Sometimes it’s an offer that had been made on the property a long time ago that amounts to little more than a low ball. The seller uses that as leverage to get you to raise your price. And sometimes, even if you’re the highest, they will counter you again because they don’t think you’ve gone high enough. Fannie Mae does this a lot.
In addition, if you are wholesaling or flipping without doing a rehab, you should be very aware of any deed restrictions or earnest money problems that may exist. For example, Fannie Mae and Freddie Mac require 10% down for cash purchases. Furthermore, with each of them you can also only sell or finance it for 20% more than you bought it for. This puts you at a lot of risk because you are not going to get your earnest money back if you back out after the inspection period.
Other than those factors, the key thing to ask is “at what price will this be a really good deal?” Furthermore, you should figure this out before it goes highest and best. Namely, when you are initially analyzing a property, put down what you want to offer as well as your ‘strike price’, or the highest you will possibly go under any circumstance. And stick to that number no matter what. Thus, when and if a property goes highest and best, you can just come in at your strike price. You will usually lose out, but not always. Indeed, Fannie Mae, Freddie Mac and HUD are notorious for miss listing properties now and then, and everyone bidding on them still wants a deal. So sometimes you will be able to get it.
Just don’t do what often happens in auction situations where people bid way above their strike price because they get caught up with the idea of ‘winning’. Buying the property is not winning if it’s not a good price. So just stick to your strike price and you’ll be fine.