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What is a Best and Final Offer?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2016
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A best and final offer is a term used to describe an offer that is extended without the possibility of further negotiation. Sometimes known as a BAFO, this type of offer normally comes about after a buyer and seller have engaged in a process of making proposals and counter-proposals regarding some sort of transaction. Once the offer is presented, the recipient of the offer has the opportunity to accept or reject it, essentially ending the negotiations with a completed transaction or an abandonment of any further attempts to do business.

One approach to understand the best and final offer is to consider the purchase of a piece of real estate. Typically, the seller begins a negotiation with a specific sales price in mind. Interested buyers may choose to submit offers to buy that are less than that original price. The seller may not consider any of the offers to be sufficient, but is open to discussing a different price, and will counter the offers with a sale price that is higher than the bids but lower than the original asking price. After some ongoing negotiation, the seller or one of the potential buyers will present a price that is the best and final offer, indicating that no additional counter offers will be entertained. At that point, the two parties either agree to accept the BAFO and arrange the sale, or the discussions about purchasing the property are abandoned.

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When it comes to securing business services, the best and final offer process often focuses on obtaining the lowest cost possible from different vendors who offer the same range and quality of services. In this scenario, a company may attempt to secure pricing that is superior to the standard pricing extended by the vendor, based on factors such as volume purchasing. Here, the customer may propose an alternative price for the services to the vendor, who in turn looks at the pricing and chooses to submit revised pricing that is higher than the customer proposed but still lower than the standard pricing originally presented. As with the real estate deal, one of the two parties at some point will present a best and final offer that either allows the vendor and client to lock in the pricing, or will end the negotiations between the two parties.

While the extension of a best and final offer may be verbal or contained in the body of an email or some other form of communication, it is not unusual for a formal best and final offer letter to be drafted. Within the body of the letter, the terms of the final offer are presented in detail for the consideration of the letter recipient. In the event that the terms are accepted, the recipient will normally respond with a formal letter of acceptance that also contained the terms of the final offer, along with verbiage that confirms the terms are agreeable and that a contractual agreement will shortly be presented that includes those terms.

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