This is an excerpt from a post last year. It is still relevant enough that it bears repeating. With the continuing dearth of inventory, multiple offers are commonplace and buyers need to expect that possibility and respond in the manner that is most effective for their situation. Best to leave emotion and distrust at the door.
[from July 2013]____________________________Let's revisit multiple offers. I had an interesting encounter with a buyer last week who thought multiple offers should include multiple chances to do "best and highest". It doesn't work that way. Typically in our market, if more than one offer is received at the same time, the listing agent will go back to all buyers' agents and give them the opportunity to bring their best and highest offer to be presented to the seller at the same time. This is risky for the seller as the pervasive distrust of real estate agents means that they run the risk of losing one or all of the buyers. I was involved in one situation where both buyers withdrew their offer when asked to bring their best and highest. The condo ultimately sold to an entirely different person for less than at least one of the first buyers was willing to pay. If your buyer's agent tells you that the listing agent has called for "best and highest" because there are multiple offers, you have three choices.
keep your offer exactly the same in hopes of being the winning offer
increase your price and/or better your terms in hopes of being the winning offer
withdraw your offer because you "don't play games' or believe the agent/s are lying to you
The seller also has choices of how they want to handle the multiple offers once received.
They can accept the offer they like best and proceed to closing. Note that the best offer may not necessarily be the highest. Closing date and terms may win out over price.
They can choose not to respond to any of the offers if none are good enough.
They can counter one or several of the offers. If none of the prices are acceptable to them they can offer the same counter-price to all and accept the first one (if any) to respond. Or, if one is clearly better than the others, they may choose to counter that one alone with a change of price and/or terms.
How a buyer responds when asked for his best and highest offer is entirely his decision. How a seller responds to the offers she receives is entirely her decision. The buyer I mentioned who was upset with the process was bothered that he didn't get a second chance to better his "best and highest" when someone else made a more attractive offer. The seller chose to negotiate with the offer that she preferred. That offer was apparently good enough that she saw no upside to re-approaching the lesser offer. It was her decision to make. Also note that in the event of multiple offers, a seller doesn't have to call for best and highest. She has the right to choose the offer she likes best without giving anyone a chance to do best and highest.At this stage of our market, multiple offers are the name of the game for any priced-right listing so be prepared for this if you're offering and don't let it deter you from participation. You decide what price and terms you're comfortable with and then hope for the best. You might win just by staying in the game without changing the offer at all. If you don't trust your agent enough to be honest with him, find another one.
By the way, the most common reply that I get when I inform a buyer of multiple offers is "Do you think they are just playing games with us?" There seems to be a widely held belief that listing agents routinely use phantom offers to milk more money out of a buyer. In my experience this is just a myth. If a seller wants more money, they have just as good a chance of getting it by negotiating in the normal manner. Lies and phantom offers are not necessary and a straightforward counter-offer doesn't run the chance of chasing away a perfectly good but skittish buyer.
"However beautiful the strategy, you should occasionally look at the results." Winston Churchill