Highest and Best

If you are a real estate investor in today’s market, I am sure you have submitted offers to banks on what they call REO properties.  REO stands for Real Estate Owned, which refers to the properties that the bank actually owns, usually as a result of foreclosure.  But you probably already know this.

And I’m sure you’ve also been in the situation where the bank gets multiple offers and the listing agent says to each party that submitted an offer to now submit their “highest and best” offer.  They are asking for the highest price you will offer for the property, with the best terms (no inspections, no contingencies, highest earnest money deposit, and so on).  You are now in a bidding war against other buyers, probably against other investors.  What do you do?

For us, most of the offers we’ve had accepted on REO properties actually resulted from this “highest and best” situation.  So for the offers we got accepted, what did we do?  How much did we jack up our offer?  5%?  10%?  $10,000?  Nope.  So what did we do?  We resubmitted the exact same offer we submitted initially.  When we submit our offers, we almost always submit an offer well below asking price.  But at the same time, we submit based on the numbers we think will work and yield a decent profit based on the costs of the rehab.  Notice that I said a decent profit.  I didn’t say an exorbitant profit.  We go in with an offer we think is reasonable for the property.  So when the bank says “highest and best”, we almost always resubmit the same offer.  We just can’t risk anything more.  We ran the numbers, and we stick with them.  “Highest and best” doesn’t scare us into bidding more; we don’t NEED to have the property.  We stick with the numbers.  If we don’t get the property, that’s fine, we’ll move on to the next one.

This entry was posted in Uncategorized. Bookmark the permalink.