Have you ever wanted to own a nearby property? Maybe this will allow you to protect the beautiful view. Maybe this will allow you to bring the aging parent closer together so that you can give them more support. Maybe you just love this property and would rather it be your primary residence than the one you currently live in. Whatever the reason, if you’ve ever thought to yourself, “I would definitely like to own this property,” here are a few things you should know.
You can use an escalation clause when making a property offer to let sellers know you are willing to go to extraordinary lengths to purchase their property. When I first heard the term escalation clause, I thought it was a common practice among landlords to increase their rent over time, either according to a cost-of-living scale or some other predetermined schedule. But no, this escalation clause is different. This is how it works.
When you make an offer to buy a property, you can tell the seller that you are willing to pay more than the highest bidder; for example, you pay $ 1000 more than the highest bid. To avoid paying too much (for example, paying $ 1,000,000 for a property that only costs $ 250,000), you can set a cap on the total amount you are willing to pay. At first glance, this may seem like a great way to make sure you get the property you want, but there are some significant risks to consider.
Let me remind you that I am not a lawyer. If you choose to make an offer that includes an escalation clause, I highly recommend that you consult with an experienced real estate lawyer to avoid inadvertently signing a binding agreement that would put you at a disadvantage. A good lawyer can help you take precautions.
So what are the downsides of offering a little more than the other guy? Why are guarantees needed? Well, while you may be willing to pay a small premium, you probably won’t want to pay a large one. It is important to make sure you are not being forced to pay too much. However, if you set a limit, you show your cards to the sellers, letting them know how high you will climb. This is not considered a wise negotiating tactic.
One way to make sure you are not being manipulated is to include language in the escalation proposal that ensures that you can review all other proposals on a reasonable timetable – first, to ensure that those proposals do exist, and secondly to make sure they are legal. (not just a friend or family member raising the price of your property so the seller can get the most out of you). Unless the other offers contain any specific language, the terms of these offers are not confidential. Keep in mind that there is nothing stopping others from including an escalation clause in their offer, and then the bidding never ends.
My advice is to avoid the risks associated with an escalation clause and simply make a purchase offer based on what you can afford and how much the property is worth to you, instead of trying to save a few dollars. It would be a shame to lose property because someone is paying less than you, but more than what you offered.
Since escalation clauses can cause all sorts of troubles, many realtors strongly discourage their clients from using them. In the end, the client ends up driving. If you need an escalation clause, you can get one, and your realtor is obliged to present your offer in accordance with your wishes. However, your realtor may insist that you sign a written statement stating that you are acting contrary to their recommendation.
If you have any questions about property management or real estate, please contact me at email@example.com or call (707) 462-4000. If you have an idea for a future column, please share it with me and if I use it, I will send you a $ 25 gift certificate to Schat’s Bakery. To view previous articles, visit www.selzerrealty.com and click “How’s the Market”.
Dick Seltzer is a real estate broker who has been in the business for over 45 years.