Sellers Beware – “Bring Your Best and Highest offer” Is Not An Effective Way to Get The Highest Price

by Gary and Lisa Schoeffler on March 25, 2014

in Latest News

Sellers listing their properties undoubtedly hope to garner the highest and best price they can.  The right mix of strategies including, marketing, staging, and of course, pricing, are all key to getting the desired price.

One popular strategy of sellers is to price the home below market value in order to extract the highest offer from multiple buyers, creating an ‘auction effect’.  Sellers counter offer all potential buyers with, ‘submit your highest offer, and best terms’ hoping to gain a unusually high price and terms for their home.  But is this an effective strategy?

When buyers submit an offer on a property that has multiple offers, they want to know where they have to be in order to be considered. When not given a number, they have to guess the highest price they need to be at to win. They may be able to pay more than the seller wants, even more than other buyers are offering.  But without knowing a number to begin with,  the result can be an unreasonably low offer, and a potential lost sale to the seller at a higher final sales price.

Here’s an example:

A home is listed for $600,000, much lower than its market value.  The price garners 4 offers, and a buyer who really wants the property.  The listing agent counters with, “We have 4 offers over asking. Bring us your best and final offer and terms, we’ll chose the highest and best.” In essence, the listing agent is trying to create an ‘auction effect.’  The buyer who really wants the property, and has the ability to pay more than other buyers, now has to guess how high over list price they need to be, in order to get the home.  However, this buyer has no idea at what number he needs to begin, so he unknowingly counters with a grossly underestimated price.  Since the price is lower than the other offers, and even though he has the ability and willingness to pay more, his offer results in a ‘lost offer’, and a lower final sales price for the seller.

Here’s what we recommend to sellers:

  1.  Do not underprice properties to procure multiple offers. Buyers like to know the price they’re offering has a good chance of getting them the property.  “Starting point” prices often frustrate and discourage buyers.
  2. Counter offer with a minimum price that the buyer must return with. This will wean out the buyers unable to afford the property, and give a serious buyer an opportunity. This strategy is a lot more successful at achieving the price you’d hoped for at listing.

Recommendations to Buyers:

“Auction effect” situations can be very frustrating. The best way to handle one is to offer the highest amount you are willing to pay.  If you don’t get the deal, at least you gave it your best shot.

Recommendations to Listing Agents:

The best way for a seller to get the highest price possible is to insure there is no ‘opportunity cost’ in a deal.  We encourage sellers to avoid the ‘auction effect’ for this very reason.  The best strategy for the ‘highest price’ offer is to encourage the seller to counter with a number that the buyers must come to, in order to be considered for acceptance.  This will wean out buyers that are not serious or unable to pay, and cause serious buyers to give everything they can to win the property.  Oftentimes, this avoids an opportunity cost, and results in the higher price the seller had hoped to achieve.

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Post by Gary and Lisa Schoeffler

Gary and Lisa Schoeffler are Ventura Real Estate Professionals specializing in residential real estate. Their expertise in helping both buyers and sellers is widely recognized in Ventura County. How can they assist you today? Wondering what the market is like? Call them, they will be happy to talk with you about it. 805-320-4472

Gary and Lisa has written 372 articles.

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