Highest and Best
All active investors have heard this from their broker before.Â The listing agent has contacted their broker and asked for their clientâ€™s â€œhighest and bestâ€.Â As an investor, what do you do?
First off, donâ€™t panic.Â It is not time to get emotional.Â It is time to re-crunch the numbers.Â The fact that one or more other investors are interested means that you have a potential opportunity.Â Now is the time to determine how much more you are willing to spend for it.
Remember my blog on rate of return?Â Given your current offer price and markdown cadence, where is your rate of return?Â Are you willing to take less?Â The answer may be yes because you believe the turn in the area is faster than others, or the target home is in the lower 50% pricepoint of the neighborhood.Â
My personal 2012 flip property was in a highly sought after subdivision in Barrington.Â Our initial offer was met with 3 others.Â I received the dreaded â€œhighest and best callâ€.Â Our first offer was slightly below list, but what was going to be the winner?Â After evaluating other potential opportunities on our board, we decided to increase our offer by 2%.Â Although it would mean a reduction in overall profit, the demand of the subdivision ensured that the property would not be a losing transaction.Â
One other thing to note on highest and best is that it is not always about price.Â Cash is king.Â If a home is considered uninhabitable (missing toilet, plumbing fixtures, etc) it will not qualify for a standard home loan.Â An offer that is slightly lower, but is cash, will almost always be preferred to an offer that requires any kind of financing.