Wednesday, March 27, 2013

Escalating Offers

So my last blog was about the return of multiple offers, a sure sign of an improving market, but now there's a new twist, and one we've rarely seen before.  It's call an "escalating offer", and essentially it says that the offerer will exceed any other offer made on the property, sometimes up to an amount certain, and usually for a specific amount over the other offer.  For example, if the home is listed for $550,000, I might offer $5,000 over any other offer, up to $600,000.

These escalators are problematic, legally and ethically.  If I'm the listing agent, I can't exercise your higher bid  without proving to you what the other offer is. Does that violate the privacy of the first buyer? Also, how do we know what makes a better offer? Will you also match the mortgage, inspection, and closing clauses?  If the first offerer responds in kind, don't you now have an advantage, since you know what the terms of the first offer are?

Additionally, if I am the listing agent, acting on behalf of the seller, shouldn't I be assuming that your offer is for the highest amount that you'll go?  So, if you say you'll match up to $600,000, and an offer needs a fixed price to be legal, wouldn't that be the only fixed amount you've indicated?  So isn't your offer really $600,000, since you've indicated that that's how high you'll go to get the property?

All of these questions are food for thought, and likely to be settled over time through a combination of convention and controversy.  In the meantime, however, I just wanted to make readers aware of the newest trend in real estate offers.  And show you how complicated it is!