Is This Really a Price Escalation Offer? Probably not.

Buyer: “Mrs. Seller. You are asking $300,000 for your house. Here is my offer for $300,000.  If you get another offer by 7:00 PM tonight for $300,000 or more, my offer will then be $1,000 more than that other offer, up to $351,000.”   The first price escalation offer may have started just like this. A capable, committed, fearless buyer promising to pay more than any other offer the owner has in hand,  up to a specific amount. That’s a true escalation offer. It’s free of stipulations. No if, and, or but. This buyer is appealing.

The Price Escalation clause common in our market is remarkably diluted of fearless commitments from the buyer with weak if, and, and buts.  If we take the written watered down clause and put it in a conversation it looks like this:

Buyer: “Mrs. Seller. You’re asking $300,000. My offer is $300,000. If you have another offer in hand for $300,000 or more, I’ll increase my offer by $1,000 up to $351,000. BUT you have to show me the other offer as proof. AND I get to scrutinize it to see if that offer has credits, concessions, or seller costs which mine doesn’t have. If after I compare to make  sure we are apples to apples, and I’m satisfied, I will sign an amendment to change the purchase price. Oh, by the way; if the appraisal doesn’t support the price, I can rescind my offer. We’ll see the appraisal in oh, 30 or 35 days from now. About 5 days before closing. ” 

Every real estate licensee and attorney  sees the caveat filled contingency is trouble waiting to happen.  The buyer who needs this kind of protection is not the price escalation buyer you want. This buyer is hopeful that you will be so enthralled by the big number that you will overlook the conditions. The game is on and it’s a gambler’s game. You and the buyer are taking a chance that the appraisal will or will not support the Offer price. A low appraisal is a big win for the buyer. You’re 4 weeks closer to closing and your other buyers are gone as is your leverage.  So, before you accept an offer with a diluted escalation clause you gotta ask yourself: “Do you feel lucky?”

A skilled real estate licensee will know how to modify the Offer to protect you when this contingency shows up in your offer. It’s great to have a strong, committed buyer interested in your property. The buyer capable of a true escalation commitment won’t be afraid. You’ll know her when you see her offer.

Author: Tom Meyer Real Estate Broker, Madison, WI

This blog is a thoughtful examination of my world. I'm willing to share my perspective and be wrong.

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