Two Key Terms of a ‘Highest and Best’ Offer

Two Key Terms of a ‘Highest and Best’ Offer

Most buyers are familiar with the traditional terms of an offer to buy a home. They include the purchase price, down payment amount, financing details, desired closing date, and any inclusions or exclusions of items such as furniture or fixtures. However, there are two key terms that can help influence a seller’s decision during “Highest and Best” situations:

Escalation Clause: Allows a buyer to automatically increase their bid if a competing offer is higher. They should always include an initial offer, the increase amount, cap, and a request for verification of the competing offer which triggered the escalation.

• Example: Let's say a buyer offers $800,000 for a home and includes an escalation clause that raises their offer by $10,000 over any higher bid, with a cap of $850,000. If another buyer offers $810,000, the escalation clause will automatically increase the buyer's offer to $820,000.

Appraisal Contingency: Allows buyers to back out, or renegotiate, if the property appraises for less than the purchase price. Agreeing to cover a potential appraisal gap (must have a cap amount) can make offers more attractive to sellers.

• Example: I recently presented 23 offers to a seller — yes, twenty-three! While several buyers bid well over asking, they included a full appraisal contingency. The winning bid, which was not the highest, included a partial appraisal waiver, reducing the risk of appraisal issues and providing the seller with confidence that the buyer would close at the agreed price.

Ralph’s Take

Terms are important to any offer. As buyers look for a competitive edge when offering their “Highest and Best”, they may want to consider adjusting their terms. Also keep in mind that an escalation clause can provide protection to buyers from bidding higher than necessary to win!