Making Offers: Best & Finals
When you’ve found a property that you want to pursue, it’s often a stage where buyers come unstuck. The process of buying real estate can’t be too complicated, surely? Found a place, make an offer, right? The problem is, the sales agent and vendor are actively pursuing the highest possible sale price - and as the buyer, you’re after the opposite. Or at least you hope so.
Without a strategy though, it can feel confusing and stressful. Offers go in, back and forth, and then the agent asks you for ‘best and finals’. They want more!? Often, this was going to be the case from the get-go. It’s not an uncommon process for private treaty sales, and with many auctions taking a back seat for now amid timing issues and buyer reluctance to participate online, Best & Finals are causing a lot of grief among hopeful homebuyers. So what’s a buyer to do?
Firstly, talk to the sales agent to clarify their process. Ensure you understand what the agent is asking, as quite often if they ask, “Is that your best offer?”, that’s an entirely different circumstance than if they ask you for your best and final. Ask questions to clarify what their process will be and if there’s a deadline involved. Some agents will never draw a line in the sand and will instead continue to negotiate between the top offerors until it’s last one standing, which requires quite a different strategy than a tender process with a defined end time/date. The negotiation process can be very stressful and emotionally draining so it’s imperative that you know your position before the games begin.
The ‘Best and Finals’ process varies, so clarify the rules before you start playing.
A ‘Best and Finals’ process can make it very easy to overpay for a property. It lacks the transparency of an auction and there’s time pressure on the buyer to make a quick decision. Too often, that’s a decision driven by emotion rather than from an informed position and buyers are left justifying the price to themselves with selective logic (a polite way of saying they overpaid but still want to boast about it at weekend BBQ’s).
So how do you separate fact from fiction? One of the golden rules is to understand the difference between fact and opinion. The agent may tell you it’s worth XYZ but really, that’s just their opinion. As the buyer, you know that they’re working for the seller yet it often influences the price. Why? In the absence of any other credible source, you go with what you have. Not on my watch. It’s the buyer’s responsibility to establish what a fair price to offer is and one of the easiest tools to do this is to know the market well.
It’s the buyer’s responsibility to determine the price of their offer. You can bet the vendor and agent have done their research and as a buyer, you need to do yours.
It takes time and effort to build up knowledge of the micro-market you’re buying into. Past sales will tell you the number but it won’t tell you the story. Did that auction go gangbusters? Was that an anomaly, bought by some overly eager out-of-towner with deep pockets and no local intel? Or did it tank, due to a forced sale, or the dodgy neighbourhood - online stats won’t tell you any of this. Yet this is what you need to know in order to build your knowledge base.
The other challenge with comparing recent sales is that no two properties are the same. Even identical floorplans involve different vendors, different motivations and sensitivity to time and price, different agents with different approaches, different market conditions - you get where I’m going with this. The aim is to be objective and impartial when making comparisons so that you’re confident with the figure you’ve arrived at. There’s no second chances in Best and Finals, so you need to be sure of your price when it’s time to put your offer forward.
If the agent has asked you for an ‘unconditional offer’ or to ‘put it on contract’, be sure that you understand what this means for you. In the absence of our usual auction climate right now, agents are missing the good old days where auction conditions meant binding offers and the sale could not be delayed or undone. Well, not without severe financial penalty at least. When it’s a private treaty sale, there’s a short timeframe where you’ll notice the property is marked as ‘under offer’. What ‘under offer’ means is that the buyer is obtaining formal finance approval from their lender, having the contract reviewed by a solicitor - basically, doing their due diligence. By submitting an offer on contract, you’re taking on the risk. And while it’s true that this is no different to making a bid at auction, the key difference is that at an auction you have transparency. You can see who’s making the bids and it’s clear feedback of where your competitors are at.
In a Best and Finals situation, there’s no transparency. The risk for you as the buyer is that you’ve stuffed up your pricing and overpaid. Not only does that leave you with a sour taste when you see a house down the road sell the next day for 50k less, it also opens you to the growing risk right now of a bank valuation falling short. What that means is that the valuer engaged by the bank has informed them that the asset you’re bringing for collateral isn’t worth the amount you’ve offered. Ouch. And when that’s offered on an unconditional contract, you’re in the hole for the full amount - even if the bank will only lend you 70% instead of the 80% you were expecting. That expensive shortfall of 10% will be funded wholly by you. But hey, it’s only money, right? It’s money that could’ve been in your bank account and now it’s in theirs. What’s even harder to live with is the knowledge that you paid too much.
Number one tip to avoid buyer’s remorse? Have a great team behind you. Enlist skilled professionals who will make the journey so much easier. A great solicitor who’ll go into bat when things don’t go to plan at settlement; a fantastic broker who can escalate your file and turn around a great rate quickly; and of course, and agent in your corner. An independent buyer’s agent who isn’t working for the seller and isn’t motivated to help you because they want to sell your house. A buyer’s agent can give you clear, strategic guidance and bring the excitement back to buying a home!
While there’s not a great deal of options to choose from on the market right now, there are some gems to be found. It’s important to make a decision based on fact rather than speculation and remember, don’t sacrifice what you want most for what you want now. There’s always another property coming up for sale just around the corner.
Happy house-hunting,
Claire