How to Win a "Best and Final" Offer Situation

Winning a "Best and Final Offer"

If you are in the property market, you would know the auction process is one of the ways selling agents sell properties in a hot seller's market in Melbourne. Most people are familiar with open auctions whereby all interested parties gather at a set place and time, and openly make their offers for the property. But have you heard of a different type of auction called "Best and Final" Offer (BAFO) auction? It is a different form of Auction. But what exactly is a "Best and Final" Offer?

What is a "Best and Final" Offer?

The "Best and Final" Offer can also be known as a closed auction. It is an auction where bidders are asked to make their formal offers, usually in writing, without knowing who the other bidders are and what their competitors' offers could be. Some real estate agents may also called it:

• expression of interest (EOI); or

• sealed bidding; or

• sealed bids; or

• silent auction; or

• closed bid auction; or simply

• closed auction

You can also look at the Best and Final Offer as a tender process, where interested parties submit their offers without knowing what other interested buyers are offering, usually within a short notice.

Sounds complicated? Yes it is, and it is one of the techniques aimed at creating panic and anxiety, thereby forcing buyers to think with their hearts and make irrational offers for the property.

Why are "Best and Final" Offer Auctions used?

Throughout a typical sales agent's sales campaign, the agents need to gauge the level of interest in the property, and to get a feel of what potential buyers are prepared to pay for the property. Agents are usually skilled at finding out what buyers are prepared to offer.

However, there could be times when buyers have no idea or refuse to disclose any information. In order for the agents to get a good feel of the level of interest, one cheeky way is for the vendors and/or agents to call a 'Best and Final Offer auction', and bring forth a pending auction. Holding a BAFO auction is also a quick way to sell the house and/or to force interested parties to disclose where their interests sit. But that's not the only reasons why a "Best and Final Offer" auction is used.

Some other reasons for using the "Best and Final Offer" closed auction include:

• the agent has legitimately received an acceptable formal offer

• there are many interested parties who refuse to disclose where their interests are

• the agent and/or the vendor wants to gauge the market interest

• the agent and/or the vendor wants to shorten the campaign

• the agent and/or the vendor wants to bring forward an auction without officially cancelling it

Some agents believe this is transparent, as the offers are not subject to any negotiations, in theory. In practice, the fear of missing out (FOMO) will force buyers to bid against themselves, stretching their own "best offer". Most inexperienced buyers will usually try to squeeze in a few extra dollars to try to outbid other buyers.

This Best and Final Offer process is not always transparent, as we will see in the next section.

How do Best and Final Offer Auctions work?

There are no right or wrong ways to run this Best and Final Offer process. But this is what usually happens:

1. Vendor and Agent decides to call for a Best and Final Offer auction

2. Agent informs all buyers who have indicated interests in the property

3. Agent tells buyers they are accepting offers and interested buyers are to put in their "Best and Final offer"

4. Agent gives buyers a dateline (can be as short as 4 hours) by when all written offers must be submitted

5. Agent then presents all offers to the vendor.

What happens next is where it gets interesting and can vary between campaigns, agents or vendors. The inconsistencies in processes and often poorly provided instructions, is also where the Best and Final Offer process creates the most controversies, anxiety and angst. This is where the BAFO process is not as transparent and fair as the sales agents thought.

The selection process may take one of the following paths:

• Vendor may simply select the highest offer and end the sales campaign

• Vendor may choose the best 2 to 3 offers if they are very similar, and start a closed negotiation process with the bidders

• Agent may choose to give the first bidder, a second chance, if their initial offer is not the highest

• Vendor may choose not to select any offers, if they believe none of the offers are good enough. The campaign will then continue to its planned public auction or end date.

Problems with Best and Final Offer Auctions

As with a typical property purchase and property auction, Best and Final Offer auctions are usually very emotional and stressful. This is intentional, as emotions, anxiety and stress are what cause buyers to think with their heart, and the resulting fear of missing out (FOMO) will usually lead buyers to stretch their offer, usually ending up with overpaying. Agents know that. Inexperienced and unprepared buyers always fall into this trap. However, experienced buyers and professional buyers agents would usually have no problems managing this properly for their clients. If you can afford it, always consider seeking the assistance of an experienced Buyers Advocates, to ensure you receive the appropriate advice for the property.

Best and Final Offer auctions are usually:

• very overwhelming for the inexperienced buyers, such as first home buyers or buyers who have not done sufficient research and due diligence

• lacking in transparency

• conducted with urgency

• conducted with poor levels of communications

Some interested buyers might not be informed of the auction, if the agents do not know they are interested. Or if the agents believe they have enough interested buyers, they may stop informing other less promising buyers, due to time constraints.

How do you Prepare for a Best and Final Offer Auction?

Treat your preparations for a Best and Final Offer Auction like a preparation for an Open or Public Auction. The tips given in our "How to win at Auctions" [link] can be used in this BAFO auction as well.

Generally, to perform your best in the "Best and Final Offer", you need to:

1. Do your due diligence.

Doing your due diligence is critical to preventing yourself from buying a property that doesn't suit you. Understand what you want from the property, why you want the property and your plans for the property. Knowing the real property market condition (not the one which sales agents want you to know) will help you understand the market demand for that property, in that particular area. Remember, every property is different, even if they are next to each other.

2. Know the real market price of the property

Most buyers wrongly trusted the price guide in the Statement Of Information (SOI) provided by the sales agent. While the SOI aims to give you an indication of the price of the property, it usually does not mean the auction will end within the price range indicated in the guide. This article will explain why Statement Of Information is best read with a pinch of salt..

You should always do your own homework.

If your research is very different from the price guide in the SOI, always feel free to ask why the agent thinks it should be so different. There could be a gold plated toilet in the house. Or some 1kg gold bars embedded in the bedroom. Or some termite infestation. Or a history of flood and/or water damage. However, more often than not, you are likely going to get a standard sales agent reply "that's based on sales data. We cannot predict how much buyers will be prepared to pay at the auction"...

A good independent buyer's advocate who knows the area, location, street, buyer demand, supply situation, buyer demographics, property characteristics, will be able to confidently give you an idea of the auction price range. At Concierge Buyers Advocates, we are confident our appraisal will give you the most accurate view of the property value. Our property appraisal service comes with a price guarantee. If the sold price is more than 15% different from our appraised price, we will refund the cost of the appraisal. No questions asked.

3. Determine your offer

This is where you have to decide what price you should offer for the property. No one can do this for you, but if you engage our buyer services, one of our buyer's agents would be able to work with you to help you:

• Assess the property value based on prevailing market conditions.

• Engage the sales agent.

• Know your serviceability.

• Determine how much you can afford to pay.

• Determine how much you should pay.

• Ensure you have sufficient funds for the initial deposit.

• Ensure you have the appropriate ways to pay the required deposit.

• Determine the absolute best price you are willing to pay for the property.

If you've been following this article, you would have guessed, what happens next, gets murky and controversial. While the sales agent may indicate that you only have that "one chance to make the best and final offer", in Victoria, the agents or the vendors might choose to further negotiate or give everyone "one final chance to review your offer". This means "one final chance to improve your offer". This can be intentional, and the message you received is usually constructed to make you panic and second guess your offer. It almost always hint that "you are close enough but not good enough. Let me help you win this. You only need a bit more... ". You might decide to improve the offer, or if you've already submitted your best-best-best offer, choose not to improve the offer.

Now, always bear in mind, you do not know who the other bidders are, and the bids they had submitted. Your bid might already be the highest, and the vendor and selling agent might just want to try their luck to extract a few more dollars from you. There might not even be any other bidders, and you are bidding against yourself. Interesting, eh? If you have done your preparations well, you should be able to confidently know what the likely scenario is. Our buyers agents would usually be able to advice based in their experience and insider intelligence on the property.

Does the best offer in a Best and Final Offer Auction always win?

Short answer: usually yes. But not always.

It depends on the motivations for this Best and Final Offer auction. Remember, one of the reasons of holding this Best and Final Offer auction is for the vendor and/or agents to gauge the level of buyer interest. They may choose not to select any of the offers, and let the sales campaign run its course, and choose to proceed with the scheduled public auction.

Usually, if done strategically, a genuine Best and Final Offer auction will almost always result in a sale. But it may not always be awarded to the buyer with the best offer. A Best and Final Offer auction is treated like any other standard written offer. IE, you CAN submit a conditional offer, which includes typical conditions such as building and pest inspection clauses, finance clauses, or any other clauses you need or can dream of. And you should always do that if you're not confident, to protect your interest. There's nothing worse than winning the auction, then discovering you do not have sufficient funds to pay, or if the house is termite-damaged.

It is in the vendor's own interests to consider all offers and conditions when reviewing and selecting the offers. They may select the offer with the most suitable conditions, even if it is not the highest price.

We always tailor our offer to the situation, our successful offers for properties are often conditional offers and often not the highest offer received by the agent.

How to win a Best and Final Offer Auction?

So, you have been contacted by the agent, telling you they are holding a closed auction, and you have been invited to submit your best and final offer by X date and time? Here is what you should do...

How to submit an offer in a Best and Final Offer Auction?

If you have been contacted and informed by the vendor agent that they are accepting offers for the property and you need to make your "best and final offer", they should also inform you when the deadline is. You should always ensure you submit your best offer before this deadline.

If the agent has not told you how or when they want to receive the offer, ask them. Make sure you ask how should you submit the offer and when the deadline is. Some may accept offers in an email. Some may have a formal offer form or an Expressions of Interest (EOI) form, that you have to fill in, sign and submit. Whatever it is, make sure the offer reaches the agent BEFORE the deadline. The agent is not supposed to accept any offers after the dateline. Not even if you are 1 minute late.

Best and Final Offer Response Template

There are no standard forms, offer emails or template for the Best and Offer response. Some agents may have a preferred paper template or email template, but do not be surprised if there isn't one. If it is specified, use the selling agent's preferred template, but if not, your best and final offer response should include these information, as a minimal:

• Your name

• Your contact details

• Your best and final offer price for the property

• Any conditions you want to include

• Preferred settlement date or period, typically 30, 60 or 90 days in Victoria.

Note: Some agents or EOI offer forms may ask for more information. Make sure you understand what is expected, and provide information, only if they are relevant for the offer. In this day and age of data privacy breaches, you don't want to provide too much information, as you do not know when your data will be stolen or misused. That said, if you believe the requested information is / can be discriminatory, you do not have to include as well.

What happens after submitting your Best and Final Offer?

Submitted your offer? Wait. And keep your fingers crossed. You'll find out what's next.

If your Best and Final Offer is being considered, the agent will let you know the next steps. You might need to be prepared to "review your offer" (aka "improve your offer"), or you might win it without any further dramas.

If your offer is the winning offer, the agent will usually prepare the formal contract of sales for your signature, and you will need to pay the holding deposit. If your winning offer is a conditional offer, it's time to start working through the conditions. Know when these datelines are. Get those building and pest inspection organised, get that finance process started, or get any other due diligence processes done. And as they say, the rest is history.

Generally speaking, if you have not heard from the agent within 4-6 business hours of the deadline (usually half a working day), your offer is 99% not being considered. If you have done your due diligence correctly, and you can truly put your hand on your heart and say you've genuinely submitted your best offer, you know you have done your best. The property is not meant to be yours. There is always a better one somewhere. But you will have to go through the same process and anxiety all over again. It could be months or even years before you find another one. And chances are, in a rising market, you will pay more for the same property or start looking in less desirable suburbs, the longer you spend searching.

If you have not heard from the agent after 4 hours, call and ask for an update. If you get a vague reply, or an iffy reply, chances are, they have selected other offers. That's usually the bad news. But the good news is, because they have not outright rejected your offer. Your offer is their back up offer. If the other offers fall through, you might just win the closed auction or you might be called to "improve your Best and Final Offer". The fact is, in a hot market with lots of keen buyers, or if other offers are represented by professionals such as buyers agents, you are highly unlikely to win it. As a side note, sales agents secretly prefer to work with buyers agents because of the high quality offers submitted by the experienced buyers agents. Sales agents know our clients are well qualified, market ready, and are committed to the realistic offer. The only things stopping a sale is the vendors' "yes".

If you have done the right due diligence, your Best and Final Offer should be your very best for this property. You should not have any "buyer's remorse" and you would not have regretted not offering an extra $500 more. Do not be that buyer. Get one of our professional buyers agents to manage your offer, if you are not confident.

Can You Counter a Best and Final Offer?

Usually No. However, there might be ways around this, to achieve similar results. It all boils down to how the agent runs this Best and Final Offer (BAFO) auction. Remember, in most (not all) situations, it is in the agent's and seller's best interest to allow interested buyers a second chance to review (and improve) their offers. So, when the agent gives you the opportunity, make good use of it. Remember, in the BAFO, the agent CANNOT disclose who and what the higher offer is.

So, you do not have to make your decision on the spot. You can always request 10-15 mins to privately review and discuss your offer with your partner, mortgage broker or lender, before confirming or revising your final offer. It also does not mean that you have to improve your offer, if what you have offered is what you believe is the best, and you would not regret if the property were sold for $500 more.

Every agent, property, circumstances are different, and an experienced buyer will help you explore other ways of getting the property you want.

Professional Help to buy in Best and Final Offer Auction is Available

If you're still uncertain with how the Best and Final Offer auction works, or not confident with your preparations, or just want the confidence to buy the property, you might want to consider engaging the a buyer's agent to:

• help you manage the whole process,

• deal with the agent/vendor and

• work out the best way forward with the offer.

Our Melbourne based Buyer's Advocacy is here to help buyers navigate the Best and Final Offer Process and help prevent buyers from overpaying. Our Purchase only plan covers all purchasing scenarios, BAFO, negotiation, auction bidding service, etc. It is also popular with hands-on property buyers who are either unable or not confident at bidding in a property auction. We help buyers prepare for purchase and buy their properties with confidence. And over 95% of our clients buy their properties in 2 months.

Get in touch, find out if our services are right for you.

Other References:

• How to determine market value of a property.

• How to win at property auctions in Melbourne.

• How can buyers advocates can help you beat the market.

• Get in touch with Melbourne Buyers Advocates.

More home and investment property buying news and tips here.