If You are Buying Repos, You Need to Understand “Best and Final”

Westcoe Realtors, Riverside California…As we have mentioned repeatedly in this blog, dealing with bank owned properties is currently a way of life in the real estate business.  Their inventory accounts for a massive percentage of the available properties for sale, and therefore, in the travels a buyer must endure to purchase a home, chances are that at some point, those travels will lead to writing an offer on a bank owned property.

 This blog has also consistently outlined some of the issues a buyer of bank owned properties must cope with when attempting to work with a bank.  Poor communication, lengthy time delays, and multiple offers are only a few of the areas we have chronicled in this space…but today, we need to add one phrase to your repotoire that has become commonplace in many REO transactions..and that phrase is “highest and best.”

While every bank is different, there are many common denominators amongst them all with regards on how they handle offers on their properties.  As we have mentioned previously, multiple offers are quite common these days on the well priced REO properties.  As a result of all these offers, what the buyer has essentially wandered into is an auction…in that the lender is like every seller…they want the most they can get for their property.  Therefore, when there are multiple offers, the lender will encourage a bidding process that may drive the price up even higher.  Keep in mind that so many of the lender properties are priced so far below the market that there is often plenty of room on the upside to raise the price and still offer the buyer a good value.

So…what is the lender procedure to encourage an ultimate bidding war amongst all the buyers?  Easy…the lender will simply counteroffer some or all of the offers with multiple counteroffers…and each counteroffer will simply tell the buyer to resubmit their offered price with their “best and final” price.  In essence, what they are saying is that if you, the buyer, have a higher price you will pay for this home, now is the time to put it on paper because we are going to sell this property to the person who will pay the most for it.  The lender does not care who got there first, or how many thousands you may have already overbid the property…they want to make sure that they get the highest price possible. 

In their defense, they are losing tens to sometimes over one hundred thousand dollars on this transaction, so it is hard to blame them…but that does not make it any easier on you if you are the buyer they now want to squeeze as much as they can.  This process is highly frustrating for everyone involved…buyer, agent, etc…but it will not go away any time soon, so we all must adjust to it’s place in our transactions.

When presented with this “best and final” counteroffer, what should you do?  Stay put, walk away, increase your offer…what?  Well, while we would love to answer that for you, ultimately the decision is yours to make, because you are the one who will need to live with the consequences.  As a general rule, we can offer the following:

1.  Don’t walk away, because you will probably be in the same boat with whatever home you try to purchase next.  Swallow your desire to scream at the lender, and stay logical.

2.  When you first make an offer, be prepared in your mind for the possibility that you may not be through…even if you have already offered more than the list price.  Have your agent run complete comps on your possible new home, and figure out if you still have some room above what you have submitted…just in case.

3.  DO NOT GET CUTE AND SUBMIT A VERY LOW OFFER SO YOU CAN SAVE YOUR BEST PRICE FOR LATER…YOU MAY NEVER GET THE CHANCE.  If your offer is too low, the bank may simply not include you in their counteroffers because they will think you are not serious.  Also, sometimes the listing agent representing the bank is instructed by the bank to only give the “best and final” counter to the top 3, or 4, or 5 etc. offers, and simply ignore the rest until the top ones have answered.  So…if you get too cute, you may not even make the first ”cut.” 

4.  Be emotional about which home you are buying…but be logical about how much you can afford to pay.  You have a maximum amount of money you can spend…so stick to it.  There is only so much money to go around every month, so once you logically figure out what your maximum price can be, then so be it.  If the home is bid higher than you can afford, then move on to the next one.

5.  Lastly, hang-in-there…this is not an easy process.  As long as you are willing to understand the hoops the lender may ask you to jump through, then relax.  It may be a hassle, but it will get you where you need to go if you just remain patient.

In the end, as we have mentioned many times, while this process can be frustrating, the end justifies the extra steps the bank requires.  If you are constantly getting beat out on the homes you are attempting to acquire, then chances are you need to reassess your commitment to the overbidding process that is now happening on almost all well priced REO’s.  For now, you will more than likely pay more than the bank’s listing price…but if you maintain some prospective, then you will eventually prevail.  Trust me…owning your new home will be well worth the process.