One sure sign that the market has heated up is that not only have multiple offer situations become commonplace, but also that offers with escalation clauses are showing up in those situations. In this context, an escalation clause in an offer says that the buyer will pay some fixed amount more than any competing offer the seller might receive. There are - or should be - more details to it than that; but the stated willingness to pay more than others is the essence.
Reactions to the use of escalation clauses run the gamut. Some think they are the greatest invention since the catcher's mitt. Others view them as instruments of the devil. Many people say, "huh?" One thing about them is for sure: everyone wants to be very, very careful if and when they come into play.
On the buyer's side, there are a variety of caveats to keep in mind. First and foremost, a buyer should consider putting a cap or limit on his offer. Suppose the property is listed for $220,000; and further suppose that the buyer would be willing to pay up to $250,000, but no more. Then the buyer might want to cap his clause at $250,000. He could offer $220,000, and be willing, let's say, to pay $2,000 above anyone else's higher offer. But not beyond $250,000. Among other things, it keeps him out of an infinite loop that could occur with a competing escalation offer.
The buyer also doesn't want to compete with offers that include seller financing, much longer escrows, or a sale contingency. It should be an apples-to-apples comparison. It is also important for a buyer to specify the manner in which he can authenticate the bona fide nature of the competing offer. I have seen a number of escalation forms; and I have yet to see one that seems comfortable in this regard.
Escalation clause - or sharp bid - offers are neither illegal nor immoral. Indeed, various reputable companies, Realtor® associations, and MLS organizations have, over the years, produced forms designed to accommodate them. Using them is a strategy that some have employed with good success. The point here is simply that they demand handling with care.
Read the full article.
For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. We are the title insurance agent that does it all for you
For your next title order or
if you have questions about what you see here, contact
Stephen M. Flatow, Esq.
Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow AT vested.com
Sphere: Related Content
Posts
