The obvious things a buyer can do is to have a strong ?pre-approval? lender letter, and make an offer that is full price and is as ?clean? (has as few contingencies) as possible. Is there anything a buyer can do beyond that? You bet your bippy!

Escalation Clauses

A buyer who really wants to buy a property can do the above, plus add an ?escalation clause.? An escalation clause simply states that the basic offer is full price, but if the seller receives one or more other offers at full price or higher before this offer is accepted, then this offer is increased by $500, $1,000, $5,000 (or whatever figure you choose) above the other acceptable offer. Of course, you choose the amount of the incremental increase based on what you think it?ll take to get the sellers? attention given the original asking price of the home.

Now, I can hear you thinking, ?That?s all very well. I can see where that?ll get me the winning bid, but how do I make sure there really is another contract? More importantly, how do I make sure I can afford the home? Isn?t this awfully open ended??

Yes, it is. So let?s fine tune the escalation clause idea a bit.

First, make the escalation offer such that it will increase the sellers? net proceeds (not gross proceeds) by $500, $1,000 or whatever. That way, your price is not artificially increased by a higher offer that includes a provision for the sellers to pay some of the costs that are normally born by the buyer.

Secondly, name an upper limit to which your offer can be carried. For example, your offer could state that you will pay the sellers an amount that will increase their net proceeds by $10,000 above any other acceptable offer up to a total price of $1,500,000. That puts a cap on how high you?re willing to go.

Prior to making an offer like this, be sure to have a conference with your lender to be sure you qualify for the highest amount required by your offer. Obviously, you also need to be sure you know and can pay the mortgage payments on that amount. It?s also a good idea to get a lender letter for this higher amount, so that the sellers will be confident you can do what your offer says you?re willing to do.

The third bit of fine tuning is to require that the seller provide you with a copy of the acceptable competing contract as signed by the other potential buyer. Make sure the ?buyer? isn?t a relative of the seller! With the written offer on hand, you can be sure everything is on the up and up.

In this hot sellers market, escalation clauses can be the key to closing a deal on your dream home. If a seller is motivated by greed, you will have them dead to rights.

Posted by John G Melloan on August 04, 2009 at 01:18 PM

About John G Melloan
John G Melloan is affliated with Melloan Real Estate, which is located in Elizabethtown, KY. For further assistance please use the contact information located on the right.




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