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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: Why Commercial Real Estate? 11 Reasons to Invest Motley Fool Booster shot: NYC real estate sees salvation in vaccine The Real Deal Commercial real estate lease roundup Virginia Business Magazine Real estate veteran touts Dayton's resiliency Dayton Business Journal How racism still affects the Columbus' real estate market Columbus Business First Milwaukee real estate market hits sales record in 2020 with pandemic buyers and low interest rates Milwaukee Journal Sentinel Commercial real estate highlights: Three office buildings in Henrico sell for $19.2 million Richmond.com Oceanfront condo gets $1.7 million, the top real estate transaction for Flagler County Palm Coast Observer How ADA Compliance Improves Your Real Estate's Marketing - RealtyBizNews: Real Estate News RealtyBizNews Island real estate transactions - 01-20-2021 - Anna Maria Island News The Anna Maria Islander Real estate records, 1/17 | Real Estate Records Lincoln Journal Star 2021 Ushers In Hope for Rebound in the Real Estate Market Commercial Observer CRE - Texas Commercial Real Estate News ConnectCRE Why the Charlotte real estate market looks invincible in 2021 Charlotte Agenda China-Europe shipping costs, Navalny jailed, Brookfield chief says real estate is undervalued Financial Times Real Estate Insider: Nonprofit to launch $37M redo of Columbia affordable housing community Baltimore Business Journal Routt County real estate sales total $10.3M for week of Jan. 8 to 14 Steamboat Pilot and Today Your weekly real estate roundup: Sweet living in Sweetwater, mall for sale, David Cassidy's house and more Press of Atlantic City REAL ESTATE TRANSACTIONS Northwest Arkansas Democrat-Gazette CPM real estate raises $26000+ for fire victims KOBI-TV NBC5 / KOTI-TV NBC2 South Florida real estate projects in the pipeline for the week of Jan. 15 South Florida Business Journal Massachusetts real estate transactions for Hampden, Hampshire and Franklin counties Jan. 17, 2021 MassLive.com CRE - New York Commercial Real Estate News ConnectCRE Tri-Lakes real estate sales: Oct. 12-18, 2020 | Thetribune | gazette.com Colorado Springs Gazette Real estate stocks hold gains even as market doesn’t The Real Deal 2020 Q4 Downtown Bellevue Condo Real Estate Report Downtown Bellevue Network NH residential real estate market remains hot even in winter Concord Monitor Hong Kong off investors’ radars even as they seek more Asia-Pacific real estate South China Morning Post Real Estate Guide: Living on Lake Nasworthy San Angelo LIVE! 6 ways in which the Budget can revive the real estate sector Yahoo Movies Canada Lebanon County real estate transfers for week of Jan. 18 Lebanon Daily News Dodge County real estate transfers Fremont Tribune Public Record: Coshocton County Real Estate Transfers Coshocton Tribune Northern Colorado Springs real estate sales: Oct. 12-18, 2020 | Woodmen Edition Colorado Springs Gazette Real estate: Urban Catalyst launches downtown San Jose projects Pacifica Tribune 2021: Have you made your real estate resolution? theneworleans100.com Real Estate Transfers: Jan. 17, 2021 | Business | messenger-inquirer.com messenger-inquirer Exec: Orlando's commercial real estate industry needs more Black mentors Orlando Business Journal 15 Biggest Real Estate Companies in the World Yahoo Finance Dallas-Fort Worth’s best retail real estate will bounce back from COVID-19′s empty storefronts The Dallas Morning News Real estate year in review | Business | themountainmail.com Mountain Mail Newspaper Worcester County real estate transfers Worcester Telegram Why REITs Beat Real Estate Crowdfunding Sites Seeking Alpha Houston real estate agents caught on tape steering buyers away from homes with less commission Houston Chronicle New York Real Estate Begins Its Recovery The New York Times South Florida’s biggest real estate stories of 2020 The Real Deal Senate flip: 5 real estate takeaways The Real Deal For real estate, a year like no other The Real Deal Remote-Work Boom During Covid-19 Pandemic Draws Real-Estate Startups The Wall Street Journal The Real Estate Collapse of 2020 The New York Times Frisco real estate broker participated in U.S. Capitol mob after flying to Washington on private plane The Dallas Morning News Worst of the worst: The real estate disasters of 2020 The Real Deal Middle-class homeowners will get 'priced out permanently': real estate investor Grant Cardone Yahoo Finance Big Real-Estate Firms Turn Buyers of Their Own Shares The Wall Street Journal |
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