Escalation clause questions
![[Post New]](/jforum/templates/default/images/icon_minipost_new.gif){kind=icon}
Anonymous
| We recently put a bid on a house (a distressed fixer but not a short sale/foreclosure) and we didn't get it, which is fine. However, the sellers agent said one of the other offers included an escalation clause. And that got me thinking A.) people actually do those in this housing market? and B.) how do you include an escalation clause without signaling to the seller they'd be stupid to accept your initial offer or anything close to it? Does the seller have to prove they have another better offer to activate the escalation? |
Anonymous
| You can make your offer valid for a certain length of time (i.e. expires on X date at X time). The sellers may have a day or two to wait for other offers, but it forces them to decide quickly. Any time I've done an escalation clause, I've made the escalation for an odd amount ($1,379) - this can give you an edge over someone who only offers in $1,000 increments, assuming your escalation goes higher than the other offer. Not all markets require an escalation clause, though. |
Anonymous
|
How do you know you won't be taken for a ride? They could easily dummy up some fake offer to activate the escalation clause.
I don't think its for me. |
Anonymous
Short answer is yes, they need proof. Do I trust real estate agents not to collude on something that makes them both money? Not really. We just lost on a bid too, so I'm a bit annoyed at how realtors have created this complex that apparently only they can navigate. Feels like such a sham to me. |
Anonymous
| It would be illegal to doctor up a fake offer. I'm sure some realtors would risk it, but I don't think many working for reputable companies would. |
Anonymous
| We just used an escalation clause and lost anyway, only because the other bidder was willing to forego the appraisal AND financing contingencies (but we weren't). |
Anonymous
|
It depends on the area you want to live in. If you are bidding on houses and not getting them it is because the area is hot. Take the neighborhood os East Bethesda, most houses sell in a weekend and most with multiple offers. Also certain areas of Arlington are exactly the same way.
|
Anonymous
| We put an offer on a house in NW DC in December, and another couple put in an offer, for the exact same amount, shortly after we did. So we made another offer, with an escalation clause, and got the house. It was geared so that it went up - I think in $3,000 increments - up to a maximum amount. |
Anonymous
|
Escalation clauses are all over the place in this market. Speaking as an agent in the business for almost 9 years, fake offers aren't doctored up to up the price. Besides being horribly unethical, it is not worth losing our livelihood.
And I know it's an uncomfortable thing to think about, but it is a much better way to manage multiple bids than just saying "put your best and final offer forward" blindly. At least this way, you have the chance to get the house for less than you would actually pay for it. And regularly, my clients who use them DO get it for less than their cap. It just works. Even in hushed tones or whispers, I've never, ever heard of fake offers actually coming into play. |
Anonymous
|
We've done escalation clauses for both of the houses we bought in this area and got them both. One went at our limit (I heard another offer went higher but they chose us for other reasons). The second went for $20K below our limit.
There is definitely an element of trust but if you're working with reputable agents, it shouldn't be an issue. |
Anonymous
| We've put bids on houses with escalation clauses on two houses. The caps were WELL over the asking price. We didn't get either. So I'm confident that the people that did get the houses, who also used escalation clauses, did not suffer from fake offers being used to drive up the price. (In both cases, the realtors told us that we lost on price.) |
Anonymous
| We lost a house recently in a bidding situation with escalation clauses; it went for 1000 over our cap. Oh well. Not crazy about escalation clauses, but the PP makes a valid point when saying it might be fairer than bidding against yourself blindly in a "best and final offer" situation. FWIW, we previously lived in NY area and never heard of escalation clauses before moving to DC. |
Anonymous
|
Escalation clauses were the norm when we bought in 2003; we made five offers, and I believe three had escalation clauses. Like a PP, when we got our house there was a bider whose clause went higher than ours, but the seller thought our financials were more solid.
It's not unusual to have a situation like 22:36--that's how escalation classes work. You escalate in certain increments until you exceed the next highest bidder; they can't escalate any higher. So most likely, 22:36, the person who won the house had a clause that went even higher, but because yours stopped, the escalation stopped a small increment above your bid. |
Anonymous
| It's like bidding on eBay. |
Anonymous
| Arlington agent here. Remember its not just the price in competitive properties. I've had sellers who have taken an offer for a smaller amount of money because the winning offer was not contingent on an appraisal or a home inspection. If the seller is waiting several days for offers, you can ask to have a home inspection done before you submit your offer. I always tell sellers to allow the home inspection as it is reassuring to buyers to understand what they may have to forego. The appraisal is hard to give up, but if you want to be in a good house in a good area and have lost several bidding wars, you have to clench your gut and proceed. Incidentally, real estate agents do not have the power to control markets as many of you believe. If we did, we would have many more houses on the market so that buyers did not have to go to the lengths I've described to buy a good house. |