Last week, I received an offer with an escalator clause. I haven't had many of those lately; this one was curious in a couple of ways. First of all, the difference between the offer and the escalation price was 13%. Usually, even if you are a bargain hunter, you can fine tune that spread a little closer, especially if the buyer doesn't want to lose the house. Second of all, and this is sad to say in this day and age, but the offer promised a $500 deposit....within 5 days. What era is this agent in? We took $500 deposits on houses 30 years ago, but the houses were only selling for $20,000.
As it turned out, we had other offers. One the seller had rejected because it was contingent on the buyers selling their home, which IMHO was way overpriced. We'll call that person Buyer #1. Another offer had been made verbally-with lots of contingencies, including repairs and closing costs. We'll call this person Buyer #2.
The seller said: "What do I do with this?" My reply: "You can do whatever you wish with this, including not participating in the escalation clause portion of it."
Simply put, we follow our seller's lawful instructions. A seller can say: "yes", "no" or "no, but" to any offer. The seller then said: "Do I have to counter to everyone?" I said: "No, there is no rule that you need to give everyone a "fair" chance, or even the same chance. You can take whatever offer you like, where the price, terms and conditions suit you. The only thing you can't do is reject an offer because the buyers are in a protected class." The other thing I told him is that he can respond without making a formal counter offer. My great friend, Adorna Carroll, describes this technique, which I use all the time as "wondering". We cover it in the Seller's Representation Specialist (SRS) course. I told him we could "wonder" to Buyer #3 about more deposit money down and more information about their financing. On his instructions, I emailed the buyer's agent, stating that we were wondering if they could make a larger deposit, and if so how much, and when. I also advised her that the property was still being shown and there was interest.
The seller then asked me if I thought that Buyer #2 whose offer was still several thousand above the top "escalation price" would consider dropping their contingencies and seller's assist, if in turn he would adjust the price to higher than the escalation price, but lower than their initial offer. I said we would not know until we asked. So again, on his instructions, I "wondered" to the agent for Buyer #2: "My seller was wondering, if he accepted a price of $XXX,XXX, with no seller assist and no repairs allowance, and a good faith deposit of $XXXX, would your clients be interested?"
Almost immediately, Buyer #2 met his terms, in writing, with a substantial check. He then asked: "But do I have to go back to the people who made the escalation clause offer and tell them about this one? I really like this offer." I told him he did not have to counter to any buyer, unless he wanted to. He accepted that offer. In the meantime, the agent for Buyer #3 said her buyers could come up with $1000, (several thousand less than the deposit we already had from Buyer #2) but again, in a few days. I told her that her clients were a day late and several thousand dollars in earnest money short.
The story doesn't end there, which is why I'm writing this blog. Two days later, a colleague from my local association called me with a question: "Does my seller have to respond to an escalation clause contract, or can they simply counter the offer like any other? The thing is, they love the escalation number, but the next highest offer is still several thousand below what the seller would like to get." I advised him that he could follow any lawful instructions from a seller, including simply saying: "My sellers will sell the property to you for $XXX,XXX"--even if that number happens to be the highest escalation clause number, and no, the seller does not have to prove he has a higher offer; he can simply say: "I'm not interested in playing a bidding war game; however, I like your escalation number and I'll take it."
There is one final caveat to this: if you are acting as a dual agent, particularly a single-person disclosed dual agent (you represent both buyer and seller) you cannot do this, as you cannot take any action, under common law, adverse or detrimental to your client's interests. Of course, that's why I never practice single person disclosed dual agency-it gives me a rash!
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