Multiple Offer Misconceptions (at least, in Minnesota)
“Highest & Best,” Defined
If this Spring housing market is like any other, it’s guaranteed that at least a few home Buyers and Sellers (and their agents!) will misunderstand the rules of multiple offers.
The result?
They’ll either miss out on a house that was within their grasp (Buyers), or jeopardize a (more than) full price offer from a financially well-qualified Buyer (Sellers).
In both cases, the parties’ strategic mistake is misunderstanding the rules of multiple offers, as conducted by area Realtors according to local custom.
Background
So, unlike other housing markets, where the listing agent (representing the Seller) presides over an “auction-style,” multiple round sale, in the Twin Cities, multiple offers purposefully go just one round.
Called “highest & best,” the logic of such an approach is that it efficiently flushes out Buyers’ best terms.
Prospective Buyers know — or should — that if they leave money on the table, their offer will be bypassed in favor of a better one.
Meanwhile, well-advised Sellers understand that, once the dust clears, the rules of engagement preclude their going back to the triumphant Buyer for still better terms.
Mirror-Image Misconceptions
Of course, it’s not uncommon for Buyers and Sellers (and their agents!) to misunderstand all that.
The biggest Buyer misconceptions?
By runner-up Buyers, who mistakenly believe they’ll get a chance to sweeten their offer.
Unh-unh.
A disappointed Buyer who protests that “they would’ve gone higher” . . . didn’t understand the rules.
“Highest & Best”: Wash, Rinse & Repeat
Also misunderstanding the rules: the delighted Seller, who tells their agent: “Great, the winning Buyer really wants it! Now, let’s see if they’ll go $10k (or $50k!) higher.”
Nope.
By definition, if the Buyer was willing to go $10k (or $50k!) higher . . . their offer wouldn’t have been their “highest & best.”
While it’s OK for Sellers to fine-tune (improve) such terms as the closing date, earnest money, or financing deadline, it’s generally considered out-of-bounds to push for a materially better offer.
At least in Minnesota, Sellers who do that risk being accused of negotiating in bad faith by the annoyed (or worse) Buyer, who decides that their offer was already (more than) generous, and walks (Note: Sellers who unduly delay responding to a serious offer risk the same outcome).
P.S.: Surprise, surprise, local Realtor customs hardly stopped banks selling foreclosures in the wake of the housing crash . . . that they brought on.
Then, the typical m.o. was for the banks to grossly underprice their foreclosures, wait for inevitable feeding frenzy, then announce a deadline for “highest and best.”
When Buyers duly obliged, the bank selected the highest 6-8 offers (out of potentially dozens!), then announced “Highest & Best — Round 2” (effectively).
Wash, rinse, and repeat — sometimes three or four times(!).
Buyers wise to this game shrewdly declined to play . . .
See also, “Runner-Up Home Buyer Lament: “But, I Would’ve Gone Higher!”; “Prospective Home Buyer: ‘The House I Want is in Multiples; What Should I Offer?’”; “Once Bitten, Twice Shy? Not in the Housing Market“; and “The Consequences of ‘Highest & Best’ in Multiple Offers, or, Would Coulda Shoulda.”
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