ESCALATION CLAUSE

Sounds very interesting, but I haven't use it.  With the low inventory, it seems like a valuable tool.

Too many of you are reading this discussion and are lured into believing these clauses are good. Don't. If you want to respond to this market properly, hold an auction.

Ken I have been using the clause from my first day at Weichert, Realtors. We believe in using it often. My only problem is in my urban market many agents won't accept it. When it is accepted it puts your client in a great position when there are multiple offers and that ls the norm in today's market. Good luck!

 

I would check with your Legal Department or advisors.  I believe this is not legal in certain parts of the country.

Thanks Kenneth. This type of language was used in the Twin Cities years ago when the market was hot and bidding wars were going on. However, it was very much discouraged as many problems evolved and Brokers began to discourage their agents from doing so. Having watched what went on, I never did it and wouldn't if it came up again.  Too many unknowns and potential problems. Not for me.

Interesting post!  I've never used the escalation clause with an offer.  It would be very interesting to see the reaction to such an action here in the Greater Atlanta area.  I believe it would blow other agent's mind since they probably haven't seen anything like this before.  Bears some deep thought.

We've had escalation clauses in our market for a long time. Didn't hear as much about them for the past few years but they're appearing once more. The strongest show I ever witnessed of them was one of my listings that drew 17 offers, several of which included escalation clauses. I think as Realtors we need to educate our clients and then listen to what it is they want to do. You might be able to surface their true highest and best without one just by educating them.

Here in Texas, writing an escalation clause into an offer to purchase could be considered practicing law without a license. So, and less you're an attorney here, you should plan to pay one to write the clause for the buyer, so that it may be added to the offer. It just goes to show how real estate is different in every area of the country. – Sara in San Antonio

Interesting post and comments from different perspectives, however, if you know the consequences of an escalation clause with your transaction, why wouldn't you use it if it was a prudent and suitable arrangement for your client?

Kenneth I have not use an escalation clause. Very interesting subject matter. I enjoyed reading all the comments.

Great post I think that it may not be legal to use in Fl i would need to find out..

 

 

 

I think that a negotiation is just that a negotiation.  Information is power in a negotiation.  Why would the buyer announce he/she is willing to pay up to a certain price?  This seems to be a very weak negotiating strategy.  Also in the end I think this creates winners and losers, if the max price is achieved the buyer feels that they revealed too much about their negotiating strategy and they paid too much, if the max price is not achieved the seller feels that they did not maximize their potential sales price.  The best negotiating strategy is where everyone feels that they have gotten the best deal they could have.  I could be wrong but the escalation clause feels like a way for an agent to avoid doing the work of truly negotiating for their client.  Let me tell you everything my buyer wants to keep secret so I don't have to write another counter offer.

I've seen this topic come up multiple times in the last few months.  Definitely a sign of the shift in this real estate market.  David (#69) makes some very interesting points.  The concept behind an escalation clause seems to make sense, but in order to protect the buyer you've got to put in a limit.  In disclosing a limit, the buyer is basically putting their cards on the table.  If I were the listing agent I'd recommend countering the offer at the limit price.

sounds like a bad idea ..... despite what everyone says I think it is a bad idea.... if I am a listing agent than I will never consider this as a valid or serious offer .... and I do not see this as an advantage to my seller .... make the best offer you are willing to do regardless of the competition, period, end of story ... you never know if there is a copeting offer ..... stop low balling offers and make them real .... if you really are not in love with the home than move on ... I also recall reading articles regarding this a few years back where attorney's were advising against it .... 

We have used these sevearl times, wuth good results.  Here in Anne Arundel County, MD we have a standard addendum for them.  I suspect we will see quiet a fwe of them over the next few months as we have very low inventory and multiple offers are becoming common.

I am finding that most sellers do not like them and one bank out right ignored one I made.  I think they like people bidding up blind.

In New Jersey writing an escalation clause would be practicing law. Besides price isn't everything terms are also a determining factor.  If I have a buyer who has 30% down and comes in with highest and best and another buyer with escalating clause with 5% down this is a no brianer....First buyer gets the house.

We don't have an escalation clause document, but I've seen one from the Seattle area. Thanks for the reminder, I will try this if I have a buyer who is willing.

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

I've seen a couple, but I have not ever used one. I counsel my Buyers about getting in a bidding war frenzy.