A call for offers is a sealed-bid auction wearing a broker's language. Every bidder submits blind, no one sees a competitor's number, and the seller chooses. That structure has been studied for decades under a different name: the first-price sealed-bid auction. Its central lesson is uncomfortable for buyers. The bidder most likely to win is the one who most overestimated the asset, which means winning on price alone is evidence you may have overpaid. This is the winner's curse, and it governs the best and final round whether the parties name it or not. The buyer who treats a call for offers as a contest of nerve, rather than a game with known structure, is the buyer most likely to win the deal and lose the trade.
Key Takeaways
A call for offers is a first-price sealed-bid auction. Buyers submit blind, and the highest bidder is systematically the one who most overestimated value, the winner's curse documented in auction theory since the 1970s.
Sellers typically narrow a wide first round of 10 to 30 bidders to 2 to 4 finalists for best and final, then choose on price and certainty of close together, not price alone.
Certainty of close is the buyer's real lever. Beyond price, sellers weigh earnest money structure, due diligence length, financing contingencies, and a buyer's reputation for not retrading.
The dominant buyer error is gaming the number. As one practitioner framing puts it, buyers try to guess the lowest bid that still wins and lose when they miscalculate.
The correct strategy is to bid your true value net of the winner's-curse adjustment, then compete on terms, because terms win deals that a marginal price bump cannot.
What Is a Call for Offers in Commercial Real Estate?
A call for offers is a structured sale in which a broker invites all interested buyers to submit written offers by a deadline, then presents them to the seller at once. It is a sealed-bid process: bidders do not see each other's terms. A call for offers is designed to create competitive tension and surface the highest and most certain bid without an open outcry auction.
The mechanics unfold in rounds. The first call is a wide net. A broker commonly invites 10 to 30 or more interested buyers to submit letters of intent. The seller then selects the strongest 2 to 4 and invites them into a second, tighter round, best and final, where finalists submit their highest price and strongest terms. Response windows compress to roughly three to seven business days, because the seller has already vetted these buyers and expects them to sharpen quickly. The structure is not neutral. It is engineered to extract the buyer's ceiling, and a buyer who does not understand that engineering bids into it blindly.
Why Does the Highest Bidder Often Overpay?
The highest bidder often overpays because of the winner's curse: in an auction where bidders hold different private estimates of a common value, the winner is the bidder whose estimate was highest, and the highest estimate is usually the most optimistic error. Winning is therefore correlated with having overvalued the asset. The prize and the mistake arrive together.
Auction theory has documented this since the 1970s, and Florida State University research confirms real estate bidding wars mirror first-price sealed-bid auctions, where competitive bidding can lead the winner to overpay relative to intrinsic value. The mechanism is informational. Suppose five buyers underwrite the same asset and their value estimates scatter around the true number because each has imperfect information. The buyer who wins is not the average; the winner is the outlier on the high side. Yale's ECON 159 lectures state the correction plainly: a rational bidder must shade the bid downward to account for the fact that winning itself is bad news about the estimate. In a common-value auction, the highest bidder's estimate is likely the most optimistic overestimate, so bidding your raw number without adjustment is a formula for the curse.
Work a simplified example. Five buyers estimate an asset's value with an average estimate equal to the true value of $20 million, but with estimates scattered from $17M to $23M.
Buyer | Private value estimate | Bids raw estimate | Outcome |
A | $17.0M | $17.0M | Loses |
B | $18.5M | $18.5M | Loses |
C | $20.0M | $20.0M | Loses |
D | $21.5M | $21.5M | Loses |
E | $23.0M | $23.0M | Wins at $23.0M |
The asset is worth $20M. Buyer E wins at $23M, a 15% overpay, precisely because E held the most optimistic estimate. The lesson is not to bid timidly. It is to recognize that the act of winning carries information, and to shade the bid to reflect it.
How Should a Buyer Play the Best and Final Round?
A buyer should play best and final by separating price from terms and competing hardest on the lever that costs less to move: certainty of close. Bid a disciplined price near true value, adjusted downward for the winner's curse, then differentiate on earnest money, due diligence speed, and a clean, contingency-light structure. Terms often decide the deal that price ties.
The reason is that sellers do not choose on price alone. Beyond the number, a seller weighs certainty of close, speed to closing, earnest money structure such as hard versus soft deposits, due diligence period length, financing contingencies, and the buyer's reputation for not retrading a signed price. A buyer who raises the deposit, shortens diligence, waives a financing contingency, or shows a track record of closing what they sign can win over a higher nominal bid, because the seller is buying certainty as much as dollars. As one negotiation principle in CRE holds, "the offer that wins a best and final is rarely the largest number; it is the largest number the seller believes will truly close." This is where a buyer who has done the reading beats a buyer who only brought money.
The dominant error runs the other way. Many buyers game the number, trying to guess the lowest bid that will still win, and lose when they miscalculate by a hair. Gaming the price down to steal the asset cheaply and losing it entirely is a worse outcome than bidding true value and winning on terms. Discipline on price plus aggression on certainty is the strategy the structure rewards. For the buyer's own protection, that price should be grounded in a defensible return, not a bidding-war reflex; see internal rate of return for the discipline that keeps a best-and-final bid tethered to underwriting.
Frequently Asked Questions
What is the winner's curse in a real estate auction? The winner's curse is the tendency of the highest bidder in a sealed-bid auction to overpay, because the bidder with the highest estimate is usually the one who most overestimated the asset. Winning is correlated with having been too optimistic, so rational bidders shade their bids downward to account for it.
How many buyers make it to a best and final round? A first call for offers typically draws 10 to 30 or more bidders, and the seller narrows to 2 to 4 finalists for the best and final round. Finalists usually get three to seven business days to submit their highest price and strongest terms, because the seller has already vetted them in the first round.
Should a buyer always submit the highest price in best and final? No. Sellers choose on price and certainty of close together, weighing earnest money, due diligence length, financing contingencies, and a buyer's reputation for not retrading. A disciplined price paired with strong terms often beats a higher number the seller doubts will close, and it avoids the winner's curse.
Conclusion
A call for offers looks like a test of appetite. It is a game with a known structure, and the structure has a trap built in. The winner's curse means the buyer who wins on raw price is the buyer most likely to have overestimated the asset, and a best and final that rewards nerve over discipline is a best and final that produces overpayment. The seller's process is engineered to find your ceiling. Your job is not to hit it.
For the operator, the play is to bid true value net of the winner's-curse adjustment and to compete on the terms that signal certainty of close. Price is the lever every buyer pulls; terms are the lever most buyers neglect, and they are cheaper to move. A buyer who treats the round as a contest of who will pay most tends to win the deal and lose the trade. A buyer who treats it as a game, priced with discipline and won on certainty, tends to acquire assets at prices the underwriting still supports the morning after the celebration. Winning the auction and winning the investment are not the same thing, and the difference is decided in the best and final round.
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