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Escalation Clauses - A Home Buyers Secret Weapon
Today we discuss escalation clauses because much of the country is experiencing an extreme "sellers' market." By that, I mean there are more buyers than there are sellers, and that results in sellers' getting more than one offer to buy their property. The seller can be picky about the terms under which he is willing to sell. A potential buyer is apt to make one or more offers which are rejected before making a successful offer. If you are a buyer, how do you increase the chances that your offer will be the acceptable one? The obvious things a buyer can do is to have a strong "pre-approval" lender letter, and make an offer that is full price and is as "clean" (has as few contingencies) as possible. Is there anything a buyer can do beyond that? You bet your bippy! Escalation Clauses A buyer who really wants to buy a property can do the above, plus add an "escalation clause." An escalation clause simply states that the basic offer is full price, but if the seller receives one or more other offers at full price or higher before this offer is accepted, then this offer is increased by $500, $1,000, $5,000 (or whatever figure you choose) above the other acceptable offer. Of course, you choose the amount of the incremental increase based on what you think it'll take to get the sellers' attention given the original asking price of the home. Now, I can hear you thinking, "That's all very well. I can see where that'll get me the winning bid, but how do I make sure there really is another contract? More importantly, how do I make sure I can afford the home? Isn't this awfully open ended?" Yes, it is. So let's fine tune the escalation clause idea a bit. First, make the escalation offer such that it will increase the sellers' net proceeds (not gross proceeds) by $500, $1,000 or whatever. That way, your price is not artificially increased by a higher offer that includes a provision for the sellers to pay some of the costs that are normally born by the buyer. Secondly, name an upper limit to which your offer can be carried. For example, your offer could state that you will pay the sellers an amount that will increase their net proceeds by $10,000 above any other acceptable offer up to a total price of $1,500,000. That puts a cap on how high you're willing to go. Prior to making an offer like this, be sure to have a conference with your lender to be sure you qualify for the highest amount required by your offer. Obviously, you also need to be sure you know and can pay the mortgage payments on that amount. It's also a good idea to get a lender letter for this higher amount, so that the sellers will be confident you can do what your offer says you're willing to do. The third bit of fine tuning is to require that the seller provide you with a copy of the acceptable competing contract as signed by the other potential buyer. Make sure the "buyer" isn't a relative of the seller! With the written offer on hand, you can be sure everything is on the up and up. In this hot sellers market, escalation clauses can be the key to closing a deal on your dream home. If a seller is motivated by greed, you will have them dead to rights. Raynor James is with http://www.fsboamerica.org - providing homes for sale by owner, "FSBO", properties. Are you thinking, "Should I sell my home?" Visit http://www.fsboamerica.org/seller.cfm to sell your home sale for free for one month.
MORE RESOURCES: Top real-estate CEO sees decades of housing pain ahead: 'What the Fed did will have a 30-year tail on it' Yahoo Finance Bring Chicago Home: What voters need to know referendum Chicago Tribune Chicago Voters Face Choice on Tax to Fund Homeless Programs The New York Times Commercial Real Estate's Systemic Threat: Separating Fact From Fiction Commercial Observer Kairoi Residential envisions major mixed-use hub on 115 acres in East Austin - Austin Business Journal The Business Journals Inside Mark Wahlberg's $100m Sydney mansion - realestate.com.au realestate.com.au Five Ways Buying and Selling a House Could Change The New York Times Landmark Settlement Breaks Up the Real Estate Cartel The American Prospect Va. real estate industry weighs in on $418M Realtors settlement Virginia Business Magazine Local real estate agents face uncertain future with new negotiation rules WJHL-TV News Channel 11 Investigation underway after 44-year-old real estate investor seen on video firing shots off boat docked at Lakeview ... WSVN 7News | Miami News, Weather, Sports | Fort Lauderdale CrewBaltimore’s mission to accelerate women’s success in real estate Afro American Newspaper The Realtors' Big Defeat The New York Times Once+a+male-dominated+industry%2C+more+women+are+entering+the+commercial+real+estate+field Idaho Business Review The Best Places to Retire in Florida Real Estate Settlement will affect Iowa homebuyers KCCI Des Moines A luxury agent on how the NAR settlement will change his business The Washington Post New rules on real estate commissions could change the housing market game LehighValleyNews.com Illinois real estate: Home sales in Peoria, Tazewell, Woodford counties Peoria Journal Star Cities Face Cutbacks as Commercial Real Estate Prices Tumble The New York Times Once America's Hottest Housing Market, Austin Is Running in Reverse The Wall Street Journal Real Estate Roundup: 240-acre farm near Orlean sells for $1.9M and more Fauquier transactions Fauquier Now H2 2023 Global Real Estate Report PitchBook News & Analysis National Association of Realtors Agrees to Slash Commissions to Settle Lawsuits - The New York Times REAL ESTATE | Kewaskum Police station moves to temporary location | By Chief Tom Bishop washingtoncountyinsider.com Austin real estate: Holt Lunsford plans first area project The Business Journals Realtor group will pay $418M to settle commission lawsuits The Associated Press Is real estate the best investment in 2024? Racine County Eye Changes could be coming to fees related to home buying process Fox 46 Charlotte Realtors settlement to lower home sale costs, alter commission structure - The Washington Post The Washington Post Bay Area Real Estate Executive Charged with Wire Fraud, Identity Theft in Investment Scam - Hoodline Checking In on Dallas Real Estate The Dallas Express What the death of the 6% real estate commission means in D-FW The Dallas Morning News Real estate lawsuit settlement will affect Orlando agents - Orlando Business Journal The Business Journals Real estate commissions, unassailable for decades, could crumble after landmark settlement The Denver Post Real Estate Settlement Could Affect Housing Market erienewsnow.com Major Changes to Real Estate Business erienewsnow.com Real estate lawsuit settlement upends decades-long policies that helped set agent commissions WQAD Moline China's Real-Estate Market Just Set a Record—but Not a Good One The Wall Street Journal Is the Era of the Celebrity Real Estate Agent Over? Industry Reacts to Settlement That Could Slash Commissions Hollywood Reporter A commission settlement may affect housing market 9News.com KUSA Realtors Reach Settlement That Will Change How Americans Buy and Sell Homes The Wall Street Journal Antitrust ruling rocks real estate: Buyers brace for shift in commission structures Straight Arrow News End of 6% real estate commissions could mean lower home prices The Atlanta Journal Constitution |
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