Winning The Bidding War

By
Real Estate Agent with Downing-Frye Realty, Bonita Springs, FL

How Badly Does Your Buyer Want It?


Your Buyer Might Have To Ante Up To Win The Home

Buyers in the fast paced markets sometimes need to get serious to win the bidding wars. An escalation clause is a tool buyers can use to make sure another buyer won't out-bid them. Use caution , however, if you're considering this strategy.

Win The Bidding War


In a nut shell, an escalation clause says you will increase any other offer by a certain amount, for example, $500 or $5,000, up to a set ceiling, such as $25,000 over the asking price. The clause should also include a termination date. Of course, if your first offer is accepted by the seller, then the escalation clause is doesn't come into play.

If your buyer simply must have the house in their sights, and they can afford to pay that extra $25,000 if they have to, an escalation clause might enable them to fend off competing buyers. It allows them to offer the highest price possible to win the home. Just remember, another buyer may set a higher escalation ceiling. Keep in mind, the seller can still select the "best" offer based upon factors other than price.  The best offer may have terms  such as occupancy post closing, as-is with the right to inspect, quick close or long close.

You Might Just Win The Bidding War


One down side of an escalation clause is that a seller may accept a contract for well over the home's market value. The problem with that is, the buyer's lender won't loan him more than the home's appraised value. If the appraisal comes in below the sales price, the buyer must make up the difference by increasing the down payment.  

From a negotiation standpoint, it may not be prudent to place an escalation clause in the original offer, because it could tip off the sellers that your buyer is already willing to pay more for the property than you have offered. Still, some markets move so swiftly that this is the best option available for serious buyers.  Especially a serious buyer that has already had a few properties slip through their fingers.

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Comments 6 New Comment

Rainmaker
221,083
Rick & Ines - Miami Beach Real Estate
Majestic Properties

We have never used an escalation clause, but see how usefull it would be in strong seller's markets.  Great info Chris - and still laughing at your monkeys.

ines

November 17, 2006 10:18 PM
Rainmaker
221,083
Rick & Ines - Miami Beach Real Estate
Majestic Properties

We have never used an escalation clause, but see how usefull it would be in strong seller's markets.  Great info Chris - and still laughing at your monkeys.

ines

November 17, 2006 10:18 PM
Anonymous #4
Anonymous
Anonymous

How do you buy a home in this market if you dont have 100% cash?

Most of the homes I have offered on, had all cash offers well above the asking proce, so of course I lost.

 

 

February 09, 2009 05:55 PM
Rainmaker
179,908
Jim Paulson
Owner,Broker
Progressive Realty (Boise Idaho) www.Progressive-Realty.info

I have written several offers with escallation clauses but the listing brokerages have not accepted them.  I think a prudent listing agent should love them since it can raise the price to each multiple offer bid up to their highest and best.  I am thinking of having an attorney draft one that I can have in my possession for when my listings have multiple offers here in Boise, Idaho.

April 11, 2011 01:52 PM
Rainmaker
721,037
Richard Weeks
Realtor, Associate Broker - Manager Business Development
Waller Group

The Texas Real Estate Commission has advised Texas agents that esculation clauses are not to be used.

October 18, 2013 04:50 AM
Rainmaker
443,511

Chris Griffith

Bonita Springs Fl Real Estate
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