The Escalation Clause in Washington State
A post by Cynthia Larsen, Can you find out how much the other buyer has offered? has inspired this post. In the comments I discovered, to my surprise, that many brokers had not dealt with escalation clauses. There were opinions about disclosure, and ethics and the rights of buyers and/or sellers, and some opinions about what agents might or might not do, give the circumstance of multiple offers.
First, the normal disclaimer, I am not an attorney, never sat for the bar, and haven’t personnally consulted with an attorney in regards to this issue or this blog post. That said, here in the Northwest we’ve gone through several years and with no little trial and error, have developed a document that virtually all agents in Washington use when preparing an offer where other offers might exist.
The Northwest Multiple Listing Service (NWMLS) is the mls for most of Washington State. NWMLS has over 2,000 member offices and over 21,000 registered agents.
In the 1990’s we agents saw a need for some direction when preparing an offer you knew would have competition. But it wasn’t until 2003 or so that companies started coming out with their own addendums addressing the issue. Windermere, John L Scott and Coldwell-Banker are the big three around here and all of them had versions. Our small office had an attorney draft 4 possible clauses depending on the wishes and situation of the buyer. The biggest problem was that agents’ “made up” wording was full of stories and rarely were complete enough to ever be enforceable. Our four variations addressed whether the competing offer’s “price” meant the stated price or the escalated price, and also addressed the issue of a contingent offer verses the non-contingent offer. There were conflicting thoughts on what the buyer’s limit or “up to” clause meant.
To say the least, with all of the individual company forms floating around, it got confusing and then some. Finally, the NWMLS came up with a from they provided “as a courtesy to members” in hopes of helping agents have something in common. And like all forms provided by the NWMLS there are disclaimers and instructions. I provide the complete package (as revised in July, 2010) here for your review: Price Escalation Addendum to Purchase and Sale Agreement.
You certainly may not agree with the concepts involved in the process we use here. It took us some time to accept the sharing of details of another offer. It usually takes a buyer several episodes of coming in second or third or even fifth when vying for a great property. It takes grit to view a property for a few minutes, pay an inspector to get over there now, and waive financing, along with being willing to go $X,000 over a competing offer. But for a few years it was routine and we see it more than a little bit here in 2011.
Keep in mind that the buyer’s offer expresses some rules they wish the seller to agree to, but like anything else, the seller is entitled to respond in any manner they please. We’ve seen sellers and their agent reply, “Since you think it is worth $XXX,000 by your stated limit, we will simply counter you at that price. The escalation addendum is removed.”
And many areas are seeing multiple offers on bank owned properties. Has anyone seen a bank counter offer lately without multiple changes and conditions of their own?
I’m curious to learn how other areas of the country deal with multiple offers.
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Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate
Hi Glenn -- I have found some agents don't understand how MO work. In general, I am not a big fan of them, but it also depends on many factors: who is the market favoring? Is the seller lucky that two buyers showed up or is it just coincidental and both buyers may decide to walk? So many potential pitfalls if both agents and both clients don't understand the process intimately.
Mar 18, 2011 03:28 AM
Retired - Seattle, WA
Erica - Like most changes in real estate, new methods gain acceptance slowly.
Chris - I'm not a big fan of them either, but for a buyer they offer a means of negotiation and for a seller they offer a systematic method to sort through what otherwise might be a mess. Most are planned by a slightly low price in a high demand market. Buyers can always walk. The point is, their desire for it is validated by someone elses desire for it. The same but opposite side of the coin that says, "Well it's been on the market more than 100 days so there must be something wrong with it."
Mar 18, 2011 04:31 AM
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor
Glenn, I just presented multiple offers on Wednesday night. I go through the PAs and list out all the differences. I also check all the similarities so the seller understands the individual offers. I think that your "solution" would work provided you don't have agents saying the escalation clause is removed. But, as you, I am not an attorney. So, I can't say for sure.
Mar 18, 2011 11:36 AM
Retired - Seattle, WA
Suzanne - That removed thing is at the choice of the seller, often advised by the agent. There are all kinds of sellers. Some are thrilled that more than one person wants to buy their home and try their best to work toward a mutually fulfilling closing. Others are out to get all they can. It's a personality thing, and we as agents just have to deal with whatever get thrown at us.
Mar 18, 2011 11:49 AM
North Orange County CA Real Estate Specialists - Yorba Linda, CA
Orange County CA Real Estate Agent
Hi Glenn,
Very interesting information! Definitely seems strange to be able to see what others are offering, and I don't believe that it's common practice here in CA. You practically get sued for even mentioning any details about other offers and buyers : )
Have a great weekend!
Gina Lemos
Mar 18, 2011 03:41 PM
Retired - Seattle, WA
Gina - You only see what the others have offered after the seller chooses your offer. It's a lot better than the free for alls that went on previously.
Mar 18, 2011 05:36 PM
eXp Realty LLC - Tigard, OR
Principle Broker Oregon
I haven't used our version here in about a year, but in 2007 and 2008, I was having to use them about 25% of the time. Though I enjoyed those times, I'm not sure for my buyers that I want to go back to those days.
My first sold listing back in 2005 became a multi-offer escalated sale, was great for my sellers, but no one was happy in the end from the buyers point of view. 
Mar 18, 2011 06:49 PM
Retired - Seattle, WA
Todd - Funny how buyers want to be better than other buyers, but don't want to be pushed. They like the pre 1990 days when getting there first with an offer had some sway. Seller representation is better now, and buyer representation exists. That's the good news.
Mar 19, 2011 04:52 AM
Schaumburg, IL
Real Estate Broker Retired
I think it's a good idea. I learned a couple of future tips on multiple offers should we ever have them again LOL. We just do it alot easier, or at least I do, like write in $500 over competing offer. That's always just worked too.
Mar 19, 2011 07:45 AM
Retired - Seattle, WA
Lyn - That worked here for a while, then things went up a notch. What if the competing offer has an escalation clause? Is it just $500 more than the offer, or $500 more than the max of the offer. What if closing dates were different. Or something else subjective. Often the highest dollar doesn't win. That is a good lesson for all.
Mar 19, 2011 11:13 AM
Idabel, OK
Glenn,
I've never seen an escalation clause. We do not have multiple offer situations that I'm aware of. Waaay back there when I first started, there were multiple offers on a waterfront listing that I had. The seller chose which one he wanted to go with and discarded the others.
Offers are considered confidential information here and we are not to talk about them.. even after there is a contract on a property... it is confidential until it closes and becomes public information so I'm not sure that an escalation clause would work if I understand them correctly based upon your post and the comments.
I am going to download your form and look at it, haven't done that yet.
I love posts where I get to learn something new or something that is done differently elsewhere. Thanks for writing it and sharing.
Mar 19, 2011 02:10 PM
Retired - Seattle, WA
Judi - When one proffers an offer it is the sellers. There is nothing that prevents the seller from saying I've got $450,000, who will give me $455,000. Sellers don't have the restrictions we do.
Etiquette among agents is a different thing. What agents do has limit. What sellers do is up to them.
Mar 19, 2011 02:33 PM
Front Door Realty - Vancouver, WA
Opening Doors to New Chapters...
I listed an REO in which the bank priced it way under market value, and one buyer submitted an escalation clause far above the highest offer. The bank honored the addendum and sold it to them for $500 over the 2nd highest offer. They could have made an additional 20% by countering at buyers top amount, but chose the honest route.
Mar 20, 2011 03:20 PM
RLAH@properties - Washington, DC
Home in the Capital
Glenn, during the wild times a few years ago, we had the battle of the escalator clauses in almost every offer I wrote. And the whole idea that the buyer was willing to go up only if there was another offer, and only $XXXX dollars above the other offer's price (or escalator clause) made it hard for sellers to just counter at the escalator's ceiling.
The problem is that all offers are not equal in ways other than the price. In some cases, the escalator clause was attached to an offer with other contingencies - or with unqualified buyers. And we had a lot of cases where the winners of the previous day's bidding war woke up with that "What were we thinking????? Get us out of this NOW!!!!!" feeling.
Mar 21, 2011 03:20 AM
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland
Goodness. How did I miss this.
So many good ActiveRain posts. So little time.
Excellent.
Our escalation clause is not an addendum to the contract. It's used to negotiate the price and then, once the contract is amended, is filed away.
Bottom line, it works the same.
Mar 21, 2011 09:52 AM
Retired - Seattle, WA
Julie - that is a touching story. They could make a movie with Jimmy Stewart playing the lead :)
Patricia - Buyers whined at first because they would have offered more if they knew and then they started putting up blocks after a while because they felt used. It's just another challenge for us agents.
Lenn - There is too much good writing to see it all, Lenn. Thanks for stopping by.
Mar 21, 2011 12:07 PM
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker
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.
Apr 11, 2011 06:50 AM
Retired - Seattle, WA
Jim -Attorney written is a good thing. Having something that the local community of RE agents is comfortable with is important too.
Apr 11, 2011 06:56 AM
Dallas, TX
REALTOR®, Broker
The Texas Real Estate Commission has prohibited agent here from using escalation clauses.
Oct 15, 2013 10:12 PM
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