[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…
Thanks for the article Ardell. We saw all kinds of ridiculous positions sellers took in our heated buying frenzy from mid 2003 to May of 2005 here in Northern Virginia. Your advice and outlook to the future is spot on! We avoid escalation clauses like the plague. Instead, we try to position our clients with the BEST (caps but not BOLD terms: no home sale, large deposit, PRE-APPROVED removing financing contingency, quick settlement and, occasionally, a personal letter from the buyers on why this is the perfect home for them. We would RARELY advise against a home inspection. I mean almost never. Exception, maybe, if a home is relatively new (like 1-2 years old). This approach has worked in many cases and not in others. If a client insists on escalation, we try to put a reasonable cap on it. “If you don’ get this one, there are more out there. Just don’t get caught up in frenzy.”
As listing agents, we advertise that we present all offers when submitted. The vast majority of our sellers just want a fair deal. Occasionally, some get greedy. Not so in our current market which is nearly dead. Those that want to be greedy now, won’t sell.
Keep up the great sharing of your experience. We always learn a lot.
Pretty much when I write about things without reference to area and specifics, it is something that is happening as I speak. I couldn’t believe it…I mean the road noise was so loud that they had music playing 24/7 in a vacant house.
But…all things considered, buyers wanted to write an offer only to find that they didn’t WANT our freakin’ offer until…next week!
That’s all I can say cause…it’s happening as I speak. Incredulous. Somebody better teach that class on “Striking while the iron is hot!”
Forget about teaching the agents. Lets offer classes for consumers!
I always wanted to be Microsoft’s in house training agent on buying and selling property without an agent. I know. I’m a heretic. Oh well. If they think they are going to do it, someone needs to be the in house real estate consultant. Now that they have their towels back, maybe they can afford me…maybe not 🙂
Ever hear the one where the Microsoft employee tried to submit his own offer to a listing agent written on a napkin! LOL Come on guys. Time to get it right because there could be a buyer’s market heading this way. Time to stop the “How to Shoot Yourself in the Foot” training and move up the food chain. If Paul Allen were still “there”, he’d hire me in a blinky.
Ardell, Great idea!