THIS IS WHY WE HAVE BROKERS, ATTORNEYS AND LEGAL HOT LINES. . . LISTEN TO THE "AUTHORITIES", NOT THE KIBITZERS!!
Please read the thoughtful article submitted by JIM GATOS, "Acceleration Clauses" in offers? Good, bad, immoral, illegal, potential for lawsuit, WHAT?
My first thought was, "It's a "clause". It's not a "commandment". Does a real estate agent risk the "FIRES OF DAMNATION" by the simple use of a negotiating tool that others may not understand??? Clearly, the escalation clause 
included in the offer Jim received was poorly written by the buyer's agent, since it didn't include the helpful necessary details that would have made the escalation clause viable. If it was as short and simple as Jim described it.....
"Buyer will pay $1,000 higher than highest offer submitted to seller".
There was a dearth of details with which Jim could work. An escalation clause, if properly drafted or if it included a board approved form, would have included a maximum price that the buyer was willing to pay stated in increments of $XXXX, which in this case would have been $1,000.
THERE IS MORE TO A CONTRACT THAN THE PRICE OFFERED. All of the focus of the comments to Jim's question have been on the price and didn't recognize that there is more to an offer than the price offered, such as the
* buyer's qualification,
* seller concessions,
* terms and conditions,
* and much more.
IT'S A CLAUSE IN CONTRACT NEGOTIATION, NOT A RELIGIOUS COMMANDMENT! Jim's question referenced "immoral". Sadly, he invited a degree of sanctimony that we see so often in comments when an ActiveRain member doesn't understand a question. For some reason, many agents tend to resort to sanctimony rather than investigation, education or counsel with brokers, attorneys or legal hot lines. Seems to me that, if an escalation clause is immoral, unethical, or illegal, a complaint to the local Association of Realtors or the Real Estate Commission/Board would be in order.
LOOK TO BROKER POLICY. If a broker believes that the real estate licensees in their office are not sufficiently skilled with an escalation clause, they may have a BROKER POLICY that precludes it's use. Risk reduction is a broker's job. My preference is education Smart brokers train their agents in the full use of the Contract of Sale, Addenda, Contingencies, etc. to better serve their buyer and seller clients.
WHEN AN AGENT INVOKES A "MORALS" CLAUSE, we immediately know that they don't understand a matter. After reading all of the comments in Jim's post to his ActiveRain blog, several thoughts remain.
1. Agents are quick to give advice on matters about which they have no knowledge or experience.
2. Agents are quick to sink to the sanctimony of morals and ethics about questions that are simple matters of real estate contracts.
WHAT IS AN ESCALATION CLAUSE? The Escalation Clause is a negotiating tool, nothing more. It does not become a part of the final contract. In pertinent part, the Escalation Clause used by members of my Association of Realtors states:
* * * * *
The following terms will apply to increase the Sales Price in this Offer:
A. In the event that Seller receives one or more additional bona fide offers to purchase the
Property with terms acceptable to Seller (the "Other Offers"), but which result in net
proceeds of sale payable to the Seller equal to or greater than the net proceeds of sale
payable to the Seller under this Offer, then the sales price stated in this Offer shall
automatically increase to an amount which generates net proceeds of sale to Seller equal
to $__________________________ (the "Escalating Factor") in excess of the highest net
proceeds of sale generated in such Other Offers.
THE ESCALATION CLAUSE does is NOT incorporated into the final contract. Just as we submit lender's letters to verify a buyer's ability to obtain financing, which does NOT become a part of the contract, the escalation clause is used to negotiate a final accepted price and does not become a part of the contract. In fact, the seller never signs it. The clause is submitted with the original offer and once the contract is accepted by the seller, the contract is amended to reflect the final price, which is then accepted by the buyer. It is the contract that is accepted by the parties. The escalation clause was merely a tool used by the buyer to say to the seller, all other matters being accepted, we are willing to pay you $XXXX more than the highest offer you receive.
ATTORNEYS KNOW THE VALUE OF ESCALATION CLAUSES AS A NEGOTIATING TOOL! One of the comments to Jim Gatos' Worcester, MA post was from Elliott S. Topkins Massachusetts Real Estate and Title Atty, Boston, MA. ELLIOTT S. TOPKINS IS A MASSACHUSETTS REAL ESTATE ATTORNEY verifying the legality of the escalation clause IN MASSACHUSETTS.
GOOD ADVICE FROM A REAL ESTATE WRITER:
"Buyers additionally should make sure they have listed a specific limit in the escalation clause to ensure that they do not make a bid that does not fit their budget." Source: Washington Times (05/20/05); Carr, M. Anthony
TRY TO RESIST SHOOTING FROM THE HIP! Just because you don't know the answer to a question, doesn't mean that anyone is doing anything illegal, immoral or unethical. Who knows? With some investigation, education and training, agents might find a deeper understanding of how real estate BROKERAGE serves our buyer and seller clients.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988. Serving home buyers in Maryland and Northern Virginia.
Comments(114)