Don't Outbid Yourself

[photopress:stop.jpg,thumb,alignright]It is time to use Escalation Clauses in reverse. Many, if not most of my clients, were previously working with another agent. Some have explained that they were not happy with the fact that the agent was always, and without exception, recommending that they offer full price, with an escalation clause over the asking price. While this may be a sure way to insure that you get the property, you may at the same time be outbidding yourself. While over the past few years, buyers have used escalation clauses to WIN the house, it is time to use them in reverse, to protect yourself against overpaying for a property.

Recently I have seen a couple of these “Seller will not look at offers until…” backfiring to where the seller has no offers on that stated date. By requiring buyers to wait a week or so before the seller will look at the buyer’s offer ,and by pricing the property too high at the same time, the seller ends up “A day late and a dollar too high”. Just because “everyone is doing it” doesn’t mean that *you* can do it, and get away with it. You meaning the seller in that context.

Now that the market is winding down a bit, will we see an end to escalation clauses? I hope not. It is time to shift gears and use them in reverse.

Let’s say the seller is asking $530,000. Instead of putting $530,000 as your offer with a cap of $550,000, you might want to offer $500,000 with a cap of $530,000. Many falsely assume that if a property has many offers, that the property was underpriced. Clearly not so. Some who have made offers at full price or better with an even higher cap, have found themselves paying full price or better, even if they end up being the only offer on the table at the end of the “seller will not look at offers until….” timeframe.

No one can predict at this time of year if the “sluggishness” is seasonal, or a sign that the market is turning. Even during the period where it seemed prices were just shooting to “the sky’s the limit”, there are periods of sluggishness. Periods of sluggishness can be as simple as many, many agents are away on vacation (August). Many, many buyers don’t want to buy what happens to be for sale (Halloween through January 2). The period from now until early next year, with the exception of a “spurt” in September, is always a slower period with no way to predict what will happen in “high Season” (January through July).

I do know this. It is a very bad time for a seller to be “off” on his condition and asking price. It is a very bad time for buyers to assume that just because a seller will not look at offers until next week, that the seller is going to get multiple offers. During the time that you are waiting for the seller to be ready to look at your offer or respond to your offer, pay close attention. If the house has any inherent negatives, particularly with regard to location, do not outbid yourself by offering full price or better just because you “assume” that the seller will have more than one offer by next week.

To sellers…you have to be “positioned to sell” by September 15 unless you are willing to take the risk of having to wait until January 2. By the way, January 2 has always and forever been my favorite day to put a property on market. But that’s another story…

Escalation Clauses – Downtown Kirkland Condo Market

I wrote an offer yesterday with an escalation clause on a Downtown Kirkland Condo that has been on market for 2-3 days. As I have said before, while there appear to be many things “on market”, most agents are waiting in the wings for something better than what is for sale at present. This is what causes properties to be on market, as opposed to being sold.

When that special property at the right price appears, it is likely to have multiple offers, as happened yesterday. Just before we write an offer, we call and speak with the listing agent to determine how best to write the offer. As soon as we hear there is another offer being presented in a few hours, we know we need to add an escalation clause. Problem is that everyone knows this, so you have multiple escalation clauses in play.

socAn escalation clause has an increment of increase and a cap. Example: Asking price $450,000. Offer might be $450,000 plus $1,000 more than any other offer in hand before this offer expires, up to a total price of $475,000. You need a cap value, as the reason everyone wants it is because of the location, condition and price. If the price bids up too high, you might as well have bought something else on market that was overpriced by offering a lower bid. So you have to be careful not to place your cap at a point where you wouldn’t have bought it in the first place.

It is amazing to me at times that no matter where I work in the Country, everyone seems to want the same thing. They all want the thing that is not for sale, especially this time of year. So as soon as something comes on market that fits the profile of what everyone REALLY wants…multiple offers. There can be 150 properties on market, but everyone is waiting for that one that is not for sale yet 🙂