There was a time when a buyer walked into a property, accompanied by their Realtor, fell in love and wrote an offer for what they hoped would be the home of their dreams. Once written, the offer was personally delivered by the buyer’s agent to the other agent at the seller’s home where the buyer’s agent would introduce him or herself and their buyer to the sellers by presenting the offer. It was an opportunity for the parties to get to know one another and to try to reach a meeting of the minds. After the presentation the buyer’s agent would thank the sellers and leave, at which point the agent for the seller and their sellers would decide whether to counter the offer or accept it. Occasionally there would be outright rejection, but that really wasn’t very common. In the rare occasion where there were multiple offers, the seller would counter all the offers (not always the same terms or price) and if all the offerors agreed to the seller’s counter, the seller would have to pick one based on down payment or other terms or sometimes just because they wanted to sell to one family over another. It was personal; real, not abstract and usually involved a handshake. Contrast that with the way real estate is handled today. A buyer sees a property with their agent; decides they would like to make an offer so the agent writes it up and sends it to them electronically often using an electronic signature via Docusign; then forwards the offer to the other agent, who in turn presents it to their seller. If it’s in “multiple” meaning multiple offers, the agent will counter with the phrase, “Best and Final,” indicating all prospective buyers go back to the drawing board and write a new offer and then the seller will pick.
The phrase “Best and Final” is relatively new and while primarily used by banks, it is being used by a lot of Realtors these days. Best and Final’s origins date to around 2007 when the banks, during the crash of 2007-2012, found they had so many offers on low priced distressed properties that best way to get the highest price with the least amount of hassle was to ask for “Highest and Best” or “Best and Final.” A buyer understood this meant there would be no counter, rather the bank would accept one of the many they had based on the second round of offers. It worked for the banks and was tolerated by the buying public because the banks had the properties and were impersonal Goliaths and buyers just had to deal with it. Fast forward to today when there is a shortage of inventory and multiple offers are somewhat common. Today Realtors, many of whom are unfamiliar with the days before Best and Final, use this as a method of counter offer.
So what are the ramifications of Best and Final? Well first of all, it rewards buyers who don’t come in with serious or strong offers because it gives that buyer a second chance. This second chance may seem like a good idea, but it is not really fair to the client who wrote strong to begin with. “Not fair?” you say, “Who said business was ever fair?” True enough, but because real estate transactions have so many moving parts and span over what could be a 60 or 90 day escrow period, fair is a pretty important thing. Moreover, in the California Disclosure of Agency Relationships, it is stated that the agent has “a duty of honest and fair dealing and in good faith”. One could argue that Best and Final is not dealing fairly or in good faith. Further, it sets a table for a contentious escrow, one where the buyer might seek to exact revenge on the seller during the escrow process. This is especially true if there is a discrepancy between the agreed upon sales price and the bank’s appraised value of the property, a condition we are seeing a lot of as prices are rising. Starting off a transaction of this magnitude on good and friendly terms should really be a goal rather than a nice byproduct. These days, over bidding is a little like when a Realtor try’s to “buy” a listing by telling a would be seller that their home will sell for more than it really and reasonably will, just to get the listing. Thus buyers are often simply over bidding just to get the deal accepted and then when the appraisal comes in predictably short, renegotiate the price lower. Additional negotiations may also be tainted like when the buyer decides to use the Request for Repair as a vehicle to renegotiate a lower price. Very often the seller, who thinks they have a solid deal, may already be in escrow on a replacement property and now find themselves “over a barrel,” forced to concede the grinding buyers lower price. A seller will often do this rather than potentially lose their replacement home of choice by virtue of having to cancel their current buyer and now forced to resell after having fallen out of escrow. Not exactly the desirable position the seller may have had before accepting the “Best and Final” offer the first time around.
Now I’m not the kind of guy who laments the days gone by or the “good old days,” if there ever really were “good old days.” Rather I am looking at a change in methodology that I don’t see benefiting either buyer or seller. By no longer meeting your business partner, which after all is what a buyer and seller are, partners in a transaction, you create an impersonal business relationship and folks, buying and selling a home is a whole lot different from buying something on Amazon. For this, we have the convenience of email and eDocs to thank. Because of these technological “advances,” we no longer meet to transact real estate and this to me is not so much a shame, as it simply serves no one’s best interest.
Published on 2013-07-22 11:44:31