Best and Final Offer: Definition, Strategies for Buyers & Sellers (2024)

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.

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.

Special Considerations

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.

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.