We continue our talk on escalation clauses
Featuring:
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: This is a circumstance where you are competing with other buyers for one home and several people want it at that time. The offers put in in writing submitted by all three possibly, let’s say three buyers, and the offers are all due on Tuesday at 4:00 PM.
Bob Nelson: So the seller is basically stating, a listing broker representing the seller is basically stating, we’re not looking at anything until Tuesday at 4:00 PM.
Marcia Edwards: Once they’ve got those in front of them, they’ll review it usually for the strongest buyer and second for the strongest net proceeds to the seller as quick qualifiers. As a buyer to compete, what’s come up more recently is an escalation addendum. It is a clause that says, hey, if you find that someone is offering more than me, I’d like to meet and beat that offer.
Bob Nelson: So I’m not necessarily promising to do that. I just want the opportunity to do that.
Marcia Edwards: Well, it depends on how it’s written. What this clause, I’ve seen it most recently, is it says, hey, we’re offering 210,000, let’s say, and in the event you can show us a bonafide offer in writing that exceeds 210,000, we will beat that off for my 1500 up to 220. that’s how they set it up. Now, a buyer proposing that to a seller does not mean the seller has to play by those rules. They can just come back to that buyer and say 220 and I don’t need to prove it. So it’s got some edges about it.
Bob Nelson: Right. But it’s an interesting situation where the buyer’s being particularly aggressive to not lose the transaction. And that’s, I like that idea. We don’t necessarily see that in commercial real estate. It’s typically a negotiation back and forth between the listing broker and the buyer’s broker. But you’ll see that situation with, hey, listen, if just a verbal situation, we will be able to, if you’ll show me something that’s higher than what I’ve done, let me know and let me see what I can do.
Marcia Edwards: Yeah, it’s definitely an informal process that’s gone on for a long time. The escalation clause is a little bit tricky. You want to make sure it’s written well to protect you as a buyer. You also want to understand that as a buyer, as a seller, they’re not required to follow the rules to the game as you establish them in the offer itself. In addition, you’ve shown your hand, you shown how how you’re willing to go, so you’ve compromised your negotiating there. And in addition, if you have two people doing an escalation clause, it’s kind of a race to the top so it can backfire. So use it with the professional and use it carefully.
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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