Today we’re looking at escalation clauses.
Featuring:
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Many buyers are looking for tools or ways to become the most attractive and appealing opportunity when there’s multiple offers in front of a seller.
Bob Nelson: Well, and it’s interesting because that is very likely that will happen. Inventories are fairly low. Your opportunity of selection is fairly low, so if you’re a buyer, you’ve solidly decided I do want to buy, I have financing that would allow me to make that acquisition and now you get fairly serious about let’s go out and catch one, problem is you’re not the only one in the game. There’s probably looking for something about like what you’re after.
Marcia Edwards: What happens next is often the case in residential, you’ll have to say whether it’s the case in investment and commercial. There’s a date set for review of offers. Do they do that similarly?
Bob Nelson: Yes. It depends. It depends on the strategy that’s involved. If you know that you’ve under listed the property intentionally, you’ve listed it at a lower price, you’re hoping that there’s going to be a series of offers and you don’t want to just necessarily look at the first one that comes through the door. I don’t particularly like that policy but that’s a strategy.
Marcia Edwards: It is a strategy. It’s kind of trying to set an auction atmosphere.
Bob Nelson: Exactly.
Marcia Edwards: In residential it’s more common just because people are dribbling in through the weekends and evenings showing the home and some point you’ve got to say, “Hey, the first buyer in has given us a bonafide offer. We need to review all offers, and out of respect for them to make sure that they know whether they’ve bought a house or not.” In that process there is what is come to the surface as a tool by some buyer’s agents called the price escalation clause.
Bob Nelson: A price escalation clause allows me, then, I’ve made a solid offer. However, if someone else is beating me, I will beat them. In fact, I make the statement, “I will beat them by a dollar, $10, whatever it would be.” Tell me about the escalation clause.
Marcia Edwards: In the residential market these days, what happens is, let’s say the property’s listed for $210,000. You could say, “We offered $210,000 for the purchase of your home. However, if you have an offer that you can show us that’s bonafide offer and reflects a price higher than $210, say $212, we will beat that offer by $1,500. So we’ll offer you $213,500, so to speak.” What you’re doing is you’re escalating, but you do cap it and say not to exceed $220,000. That’s an interesting process and we don’t know if it’s necessarily something you need to do as a seller. But let’s talk about that next program.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30 on KPNW for the “Real Estate Today” radio show.
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