Do you want that house? You can bet others do, too. Chances are that when you make an offer on a Destin, Emerald Coast of Florida, house or condo, there will be at least one competitor trying to outbid you. If you had your agent ask the right questions first, you could only hope that the seller would pick your offer. But you may have another option.
Florida Realtors has just released an official “Escalation Addendum” for use with the Florida real estate contract (either the FR/BAR, CRSP, commercial contract, or vacant land contract). An escalation addendum, or escalation clause, states that the offer price will automatically go up if certain conditions are met. By using this new addendum, you may potentially outbid the highest competing offer up to an amount you specify.
How does the Florida Escalation Addendum work? Let’s look at an example:
- Your agent found you a home in a very popular neighborhood, for example, in Bluewater Bay. Houses stay on the market there for less than a day, and most sell for over asking price. It’s a huge military and retirement community that has a very fast real estate market. You’ve been looking for weeks and this is the house!
- Let’s pretend the house is listed for $500,000. With the advice of your agent, you are going to write an offer for $515,000. The only catch is, there will likely be a dozen competing bidders, all of them submitting by the offer deadline. You decide that your maximum price in this situation would be $530,000, or $30,000 over asking price. You don’t, however, want to offer $530,000 initially and give all your money away if you don’t have to. That’s where the escalation addendum comes in.
- The Florida Escalation Addendum would specify the amount by which you are willing to increase your offer over a competing offer. For example, you could state you would be willing to pay $5000 over another offer. If the highest offer was $520,000, your offer would change to $525,000. If the highest offer was $527,000, your escalation addendum stated you would not go over $530,000, so that would be your highest offer- not $532,000. Does that make sense?
What are the Florida Escalation Addendum’s stipulations?
- The Competing Offer that the seller may choose to show you (with buyer’s name redacted), must still be in effect. In Florida, offers have an expiration date.
- The Competing Offer must be bonafide. The seller cannot have trumped up a fake offer to entice you to offer more.
- You must specify if you will pay cash or finance any increased amount. You must show proof of the ability to do so along with the addendum.
What’s the catch?
There are several. First of all, the seller does not have to respond to your Escalation Addendum. It can be confusing and gimmicky. They may ignore your offer, or simply counter offer you without regard to your Escalation Addendum. Why would they not outright counter with the maximum price you stated you would pay? On the other hand, “price” may not be the most important criteria to the seller. They may like the terms of another offer better, even though the purchase price may be less. They might like the structure of another offer better. The seller may choose to simply ask for the “highest and best” offer from all parties. There could also be multiple offers with escalation addenda. What a mess!
Should you use the Florida Escalation Addendum?
It’s a matter of style. Some buyers prefer a more straightforward approach, rather than using a potentially confusing clause. If you know what your highest offer is, why not just offer it? Your agent should also ask the listing agent if the seller would be receptive to such an offer.
If you choose to use an Escalation Addendum, I recommend using the Florida Realtors’ addendum. Previously, some Florida real estate agents would scribble something they made up to formulate an “escalation” clause. This was risky, because a real estate agent is not an attorney, and constructing complex clauses is not a good idea without legal advice. The official Escalation Addendum is a form you can have confidence in, should you choose to use it.
It’s Wendy… It’s Sold!
Wendy Rulnick, Broker, Rulnick Realty, Inc.
Email Wendy: firstname.lastname@example.org
Wendy Rulnick, Broker, lists and sells real estate in Destin, Santa Rosa Beach, 30A, Miramar Beach, Crestview, Sandestin, Seaside, Rosemary Beach, Okaloosa Island, Fort Walton Beach, Niceville, Freeport, Bluewater Bay, Navarre, Florida.