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.
An 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 🙂
Several months ago, I authored a couple of posts on my blog regarding escalation clauses from the seller’s perspective and the buyer’s perspective. Ardell, you’re an experienced and knowledgable agent, so I’m sure you’re capable of drafting such a clause. However, I wonder whether such actions by a real estate agent fun afoul of the rule in Cultum v. Heritage House Realtors, 103 Wn.2d 623 (1985). In that case, the State Supreme Court held that agents may engage in the limited practice of law by completing “simple printed standardized real estate forms, which forms must be approved by a lawyer.” I am unaware of an MLS form that addresses the escalation clause. As a result, agents will use the blank Form 34 and write the clause themselves.
Moreover, when an agent receives several offers containing such clauses, can the agent interpret and explain those clauses, including their relationship to each other, consistent with the rule in Cultum? I know of a seller who used a relatively inexperienced agent. The seller received several offers with escalation clauses, including one that required the escalated amount to be presented as a counteroffer. The agent did not know how to handle the situation and, as a result, the seller ended up getting less than the maximum amount on the sale.
Some companies have a lawyer drafted, company approved, escalation clause addendum that are available, along with nwmls forms, via Xpress forms.
Our agents always call when a multiple offer situation arises and we walk them through it. Escalation clauses are getting to be fairly commonplace. I’m surprised nwmls hasn’t come up with a version and instructions on how to use it.
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Craig et al,
I was writing an offer today, in between making 4 lasagnas for my Sunday night Sopranos fest, and noticed that NWMLS has added form 35E, a readily available Escalation Addendum. So sometime between my comment on 2/26/2006 “I’m surprised nwmls hasn’t come up with a version” and today, NWMLS and Express Forms has added this much needed form.
I’m sure Craig and Russ will be please to know that when I wrote an offer today and included an Escalation Addendum, I “filled in the blanks” 🙂
What about a situation where a listing agent claims to “ignore the escalation clause” noted on the first page of a purchase offer? I recently made an offer on a home in Spokane including an escalation clause. I made a starting offer price, a $250 escalation clause and an ending price. The list price appeared to be deliberately low and the listing agent took offers for one week. In the end the listing agent told my agent we were the “third best offer” based on my initial starting offer price and that they “ignored any escalation clauses”. She also disclosed that the home sold for less than my final price. In my mind her sellers therefore received less than they could have and I’m wondering about an implied breach of duty to her sellers as well as the legality of them “ignoring escalation clauses” altogether? Note: The sale was just negotiated Friday May 12 so it hasn’t closed yet and I’d like to pressure the listing agent and her broker about it…
Craig, $250 is generally not enough to garner serious consideration. Most common increment used is $1,000. Most sellers would pick the strongest offer without regard to that extra $250, as happened in your case. The seller does not need to take the highest dollar amount, and often does not.
An escalation clause is a great tool and can be used to grab the seller’s attention when there are many offers. Feel free to email me if you would like to go over some hypothetical scenarios before making another offer.
Thank you for the reply. I realize the “$250 over” is a smallish dollar amount, however, this was on a list price of $85,000 in Spokane…brings a bit of relevance to the conversation.
Is a listing agent obligated to recognize an escalation clause? I ask because she specifically communicated that they had ignored any offer with this clause…
My offer did include an “up to” figure that was many thousands over what they accepted. It was also 20% down, fast close, etc…reasonably attractive. Thank you for your thoughts. CD
Craig, I repeat this for the benefit of others as well. Your cap is irrelevant to the offer. A high cap does no one any good if the most you will give them is $250 over the highest offer. So your offer is only ever worth $250 more than someone else’s offer, which is not enough to be considered a factor, regardless of sale price. $250 is $250 whether the sale price is $85,000 or $450,000.
Feel free to call me and chat this one out, as there is another issue you are not considering that I prefer not to highlight “in public”.
As to the agent, irrelevant since you put the escalation clause on the first page of the contract. If the seller saw the offer, he saw the escalation clause and both the seller and agent disregarded it because it was only worth $250 to the seller. Not enough to impact his decision process.
Pretend you are the seller. How much difference would $250 one way or the other matter to you?