StreetEasy quotes Armen Meschian

By Ann Lien   I   June 29, 2021

How To Determine Your Best and Final Offer

So you’ve finally found the home that checks all your boxes, and you’re ready to negotiate the purchase price. Usually, you make an initial offer, and then the seller counters. Afterward, the negotiation ends with your final counteroffer. But if you’re dealing with a desirable NYC property, it’s not always that simple — more notably when there’s a bidding war. And just when you think you’ve lost the place, the seller’s broker will suddenly ask for your best and final offer to weigh against other buyers’ bids. But what does best and final offer mean? And how do you know what number to choose? It’s tricky, but we’ve got some tips to help you through it. 

What To Know Before Making Your Initial Offer

The listing price of a home is not always the exact market value of the home. But how do you know whether to bid above or below? Brokers often price below the market rate to attract a crowd and potentially start a bidding war, says Polly (HuiWen) Milligan, a real estate agent at Douglas Elliman. Or, brokers will price the home above the market rate, expecting buyers to bid lower — both are common pricing strategies.

To determine whether the home is priced above or below the market rate, you can look at comparable properties. However, the pandemic has complicated the process — while the NYC real estate market rebound has begun, it hasn’t returned to pre-pandemic levels.

So what does it mean for you? You want your best and final offer to be close to the price the seller wants within reason. Aiming for the sweet spot in between post- and pre-pandemic prices is a smart way to go.

“Take a look at what similar units in the neighborhood or building closed for pre-pandemic, and what the nearby asking prices are right now, and aim for something in between,” Milligan says.

Need a little help with your research? StreetEasy’s Data Dashboard is a great place to start. Just use the dropdown menus to select an area and then the sales median asking price.

Factors To Consider Before Bidding on a Home

Now that you’ve looked at comparable properties, it’s time to consider your offer. 

If the apartment has been on the market for a while or if it’s a fixer-upper, you may be able to bid below the asking price. Even your best and final offer could wind up under the asking price. But despite the current market, you don’t want to lowball too much, either. The lowest you should go is 10% below the asking price, says Milligan if you want your offer to be taken seriously.

Is the apartment a condo or a co-op? This, too, can affect how much leeway you have in terms of your bid. In NYC, there is a much smaller inventory of condos than co-ops. As a result, you typically can’t offer a penny less than the asking price. “It’s a matter of supply and demand,” says Armen Meschian, an associate real estate broker with CORE

How To Make Your Best and Final Offer Appealing

Getting the home is not just about making the highest offer. What you bring to the table is key, especially in a bidding war. Here are a few ways to prepare:

Calculate your debt-to-income ratio 

Obviously, it would be best if you didn’t bid more than what you can comfortably pay. Most co-op boards prefer your monthly debt-to-income ratio to stay below 30%. You can find your DTI by dividing your monthly debt payments by your monthly gross income. When you make your best and final offer, be sure not to exceed this ratio.

Share what’s in your bank account

In addition to your proof of income, sellers and co-op boards also want to see that you have savings.

“Both sellers and co-op boards like to see some reserves,” says Meschian. “They want to know that people won’t be completely tapped out after the purchase.” 

While showing you have lots of cash in the bank is great, there are mitigating factors. As Meschian points out, a stable income stream can compensate for smaller reserves, especially in an unstable economy. So a tenured professor with modest savings could actually be more attractive to a seller than a buyer with higher reserves who just started a job at a high-risk startup company. Sellers — and ultimately, the co-op boards — will factor this in when evaluating your best and final offer. 

Up your down payment

The more you can put down beyond the minimum required, the better. But again, keep the balance of your DTI and reserves in mind. You don’t want to put down so little that your DTI will be huge, nor do you want to put down so much that you have no reserves. Aim for a happy medium in your best and final offer.

Write a letter to the home seller

Including a letter in your offer is a great opportunity to stand out. A letter puts a human face on a packet of numbers and stats. Both the seller and co-op board will appreciate seeing the enthusiasm and a desire to reside there long-term, so it’s important you drive those points home. And be sure to mention if you have dependable employment — for example if you’ve been at your company for 10 years. The board will want to see that you have longevity and stability before accepting your offer.

How the Pandemic Changed Home Buying

Every contract will include revisions and amendments, such as repairs or appliance replacements. But the pandemic has only increased the kinds of amendments you might have to make to your contract.

“Sellers are very concerned about whether a person will still be employed by the time he gets to the closing table,” Meschian says. Buyers are concerned, too. As a result, job loss exclusions and other related language are now often added to contracts, whether they’re written to protect the buyer or the seller. 

Until the economy is booming again, these practices are likely to continue. It further underscores the importance of highlighting your employment status or healthy nest egg when making your best and final offer.

Best and Final Offer Tips

No matter how much your heart is set on an apartment, Milligan cautions against bidding more than 10% above the asking price for your best and final offer. Many buyers err by focusing on the purchase price, and whether they can afford the home right now, Meschian said. But many other factors come into play when considering how a home might resell in the future if you put it back on the market. These factors include policies about pets, subletting, or flip taxes.

“Even if you are comfortable with the policies, this may not hold true for buyers later,” says Meschian. For example, restrictive sublet or pet policies could drastically shrink your potential buyer pool. That means if you bid significantly above the asking price, your offer could be vastly overpriced and work against you in the future. 

While it can be disappointing to lose out on an apartment that feels like home, you want to stay within reasonable boundaries. No apartment is worth paying more than you can afford, especially if it won’t have long-lasting value. Following these guidelines will help set you up for success in making your best and final offer. 

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