When a real estate market gets hot, it’s common for a seller to receive multiple bids on their home. If this happens, the sellers’ agent will let the buyers’ agents know that they are in a competitive situation. The agent will request all buyers bring their highest and best offer. For the seller, a competitive situation will likely allow them to garner the highest possible price for the home, accelerate negotiations, and get them favorable contractual terms.
Though this isn’t necessarily a good thing from a buyer’s perspective, it isn’t a bad one either. Buyers need to be aware that the best offer isn’t always the one that is the highest price. Price figures most prominently with sellers, but contingencies, financing terms, time frames, and other contract conditions are also taken into account. For example, a buyer without any contingencies would certainly be more attractive than one that must sell their own home first. A cash transaction will be placed ahead of a similarly priced offer that requires financing. A $5000 binder looks better than a $500 binder.
Competitive situations can result in offers that exceed the list price. Buyers in this situation aren’t going to necessarily be overpaying. It’s also possible that none of the offers comes anywhere near the list price. An appraisal will tell the buyer if they’re overpaying or not. Most contracts will allow them to exit the transaction with their binder if the appraisal is low and they can’t negotiate a better price with the seller. It’s said that a buyer can’t overpay for a home unless they choose to.