What Is a Best and Final Offer?
A best and final offer in real estate is a prospective buyer's last and highest offer for a property. The best and final offer is typically submitted in response to a bidding war. A seller who has received several offers will ask all bidders or the top bidders to submit their best and final offers rather than trying to negotiate individually with each bidder.
The term is also used in government contracting. An agency will ask bidders to submit their last and final offers to ensure all parties have the ability to submit their most competitive pricing for a job.
- In real estate, a best and final offer is the prospective buyer's last and highest bid.
- Initiated by the seller of a property, all remaining parties must submit one last offer that is often not to be negotiated further.
- Sellers initiate best and final offer processes to expedite the selling process and drive bidding wars, but the process may scare away potential buyers.
- Buyers can leverage their real estate agent to understand what conditions the seller is most interested in prior to submitting their last offer.
- In government contracting, it is a prospective contractor's last and often lowest bid.
How a Best and Final Offer Works
The best and final offer in a real estate bid is the most favorable terms the buyer is willing to offer the seller for the purchase of the property. A seller who receives multiple offers will resolve the situation by asking each bidder to submit only one offer that represents their best and final offer. This process is often not undertaken unless it is merited; if a seller has received a competitive offer for their house or did not receive many bids, a best and final offer process is not warranted.
The process often starts with the elimination of non-competitive prospective buyers. However, the seller may decide to open this process up to other buyers, even ones that previously did not submit an original bud. The seller's agent notifies all parties involved of a deadline to submit one final offer shortly. This deadline is often no longer than several days.
Each best and final offer isn't limited to just price. Buyers should be prepared to submit lender pre-approval documentation, a clear financial profile, a personal biography, and non-financial terms including inspection and closing preferences. Best and final offers may also still be submitted as a price range to demonstrate the buyer's preferred price and maximum price, though the seller may stipulate specific pricing to avoid continual negotiations.
Motives for Best and Final Offers
In real estate, there's several reasons a seller may initiate a best and final offer:
- The seller wants to sell faster. Instead of having to navigate multiple rounds of negotiations, the seller may only be interested in working with the most interested party. By kicking off a best and final offer process, the seller is signaling to prospective buyers that they want to skip past some of the early-stage discussions and move directly toward late-stage negotiations.
- The seller received too many offers. There may have been tremendous interest in the seller's property, and they simply can't decide how to otherwise narrow down the offers. Some may have the most favorable price, while others may have more favorable terms or flexibility. If the seller feels there are more than enough parties to warrant a best and final offer, it will use this technique to weed out non-competitive offers and only move forward with the most interested parties.
- The seller wants the best price. This technique doesn't always work, but a best and final offer is a signal to prospective buyers to make their offer as appealing as possible. This includes escalation clauses or waiving inspections. While a best and final offer may scare away potential buyers, it also has the potential to incite a bidding war between the top parties.
In the government sector, government entities are frequently mandated to choose vendors and suppliers who offer the lowest possible prices for the requested services and products. The manager of the procurement process is still permitted to weigh other factors such as the reliability and competence of the vendor in addition to the final offer price. Most often, there are strict bidding processes that stipulate what these agencies must ask of suppliers, including one final and best offer.
A call for best and final offers is also a signal to the real estate market that you are intent on selling your home. While other deals may have prolonged timelines, a signal for participants to submit top offers indicates a short timeline to make a deal happen.
The buyer who gave the winning best and final offer may also withdraw the bid. This may be because of new information that became available about the property or questions about the bidding process including whether or not there actually were other bidders driving up the price. As with any offer that is dependent on the outcome of contingencies, acceptance of a best and final offer bid does not guarantee a deal will close.
Most often, a best and final offer is communicated as non-negotiable by the seller. It is expected that all offers are as-is, and the seller must decide to either accept or reject (not negotiate) all offers.
Consideration for Real Estate Buyers
If a property is expected to be competitive, buyers may consider distancing them from all other parties with a very strong initial bid. Instead of leaving the door open to other buyers, the seller may take note of the serious offer and decide to only negotiate directly with the top bidder.
Real estate agents and brokers play a key part in crafting best and final offers. If it comes time to prepare one last bid, buyers often rely on their broker's experience to guide them on the specifications, layout, and intricacies that make their offer stand out.
If you're in a situation where you're asked to submit a best and final offer, attempt to find out what the seller wants through your agent. There may be specific conditions the seller is most interested in, and you're at an advantage if you're able to obtain this information prior to submitting your offer.
Consideration for Real Estate Sellers
A critical part of the best and final offer process is determining whether one is needed. A best and final offer process may scare away interested parties, especially if market conditions have softened. Buyers may drop out of the bidding process, withdrawing their previously strong offers.
It's often not recommended to move forward with a best and final offer process unless there are at least three strong bids.
Prior to kicking off a best and final offer process, leverage your agent's experience to provide an unbiased evaluation of offers and whether you are receiving fair value. While it's understanding to want to maximize the return on your home, buyers that have already submit fair offers may turn elsewhere if they do not feel your requested terms are favorable to all parties.
When evaluating final offers, consider the buyer's profile and their ability to close at the agreed price. Their price may be most enticing; however, review relevant lending documents and tax returns to understand their personal finances to minimize the risk of them not securing financing.
Consideration for Government Entities
For government agencies entertaining requests for proposals, an interesting conflict arises when evaluating diversity and inclusion initiatives. A company may submit the lowest price with the most favorable conditions. However, more entities are striving to obtain inclusivity targets. Each government entity should have guidance on how to evaluate bids and select between favorable terms and target demographic.
Government agencies often send a letter often citing that negotiations have concluded for the request, That letter outlines the opportunity to submit one final packet, the cutoff date for submission, and provisions of the submission such as the method and information to be submitted.
Best and final offer bids are often required to be in writing and signed by an authorized representative or executive of the vendor or supplier. If a best and final offer is made verbally to expedite negotiations, the offer must often be certified and confirmed in writing afterward.
Some entities have conditions or guidance on reopening discussions after best and final offers have been submitted. In some situations where a government agency wants to further discuss terms with one specific offeror, the agency may be required to reopen the potential for discussion with all offerors.
What Is a Best and Final Offer?
A best and final offer is a call to interested parties to submit the most ideal contract conditions. It is often the final round of discussion during the sale of a property; once the best and final offers are in, the seller often selects the best one and works directly with the buyer with the most favorable terms.
A best and final offer is also prevalent in government agencies that seek proposals for jobs. After an initial round of bids, government agencies may ask the companies with the best offers to submit one final bid with the lowest price they are willing to contract for.
Does a Seller Have to Accept a Best and Final Offer?
A seller is not obligated to accept any offer they do not feel is fair, including best and final offers.
Is a Best and Final Offer Binding?
Like all other offers for real estate property, a best and final offer is binding once a contract has been signed. However, the agreement may still fall apart if the buyer fails to obtain financing or if contingencies are not met. In addition, a buyer or seller may back out at any time, though they may be required to pay penalties, fees, or lose earnest deposits.
Can You Negotiate After a Best and Final Offer?
The seller can reopen negotiations after best and final offers have been selected. Most often, the seller will select the most interesting offer and negotiate directly with only the top bidder. However, the goal of a best and final offer is to have a package that does not need to be negotiated (or requires very little negotiation).
How Do You Win a Best and Final Offer?
Every seller is different, so it's to your advantage to understand what is most important to the other party. Use your real estate to get information on what the seller is most interested in. Then, craft your final offer to cater most to what they are looking for. For example, a seller interested in a quick sale may accept a lower offer if you waive all inspections and reduce contingencies.