Do I hear $500,000? $510,000? $520,000?! Sold to the highest bidder! No, this is not a BLOG about auctions, but rather about the feeding frenzy that is the current Southwest Florida residential real estate market. As anyone in the local real estate business knows, we are currently experiencing market conditions the likes of which have not been seen in many years. Historically low interest rates, unusually low inventory, and Buyers’ heightened desire to move motivated by these market conditions and the pandemic have resulted in a Seller’s market that has made multiple offers on a listing the current norm. Dealing with this new reality has required many Buyers to get creative (and sometimes desperate) when submitting offers to make them as enticing as possible: all-cash offers; quick close; no inspections; “heck, I’ll even throw in my firstborn and the family dog! Whatever it takes!”
Rather than giving away something you might regret when getting caught up in a bidding war, a good recommendation to consider would be to add a well-written “escalation clause” addendum to your offer. A well-written escalation clause will allow the Buyer to make an offer at an initial purchase price, while also confirming in writing that the Buyer is willing to increase said purchase price by a certain amount — up to a maximum amount — should another Buyer make an offer which is higher than theirs. While this is certainly a useful tool to add to a Realtor’s arsenal during a Seller’s market, Realtors and Buyers should use caution when including an escalation clause in an offer. For instance, if the maximum purchase price the Buyer is willing to offer is not properly defined, the Buyer could find themselves under contract for a home that is well above what they intended due to a bidding war. In order to avoid unintended pitfalls when using an escalation clause addendum, we recommend the following language or something similar:
“If, prior to Seller’s acceptance of Buyer’s offer to purchase, Seller receives from another prospective purchaser a bona fide offer to purchase the property (“Competing Offer”), with terms acceptable to Seller and a Net Purchase Price (the Purchase Price less any identified Seller financial concessions) higher than the Net Purchase Price offered by Buyer, Buyer agrees that the Purchase Price of Buyer’s offer is increased so that the Net Purchase Price is $_____ higher than the Net Purchase Price in the Competing Offer(s), up to a maximum Purchase Price of $______. Seller shall provide a copy of the Competing Offer to the Buyer no later than the time Seller returns a copy of the executed Agreement to Buyer.”
By including the escalation clause language discussed above, Buyers can be certain that (1) their offer will be increased by a certain amount if the Seller receives an offer that will net them a higher amount, (2) their escalating offer will “max out” at a defined amount, and (3) Seller will be required to prove that they actually received a higher offer. As mentioned above, there are certainly risks associated with adding escalation clause addendums to an offer, so it is recommended to consult with a real estate attorney before doing so. Should you have any questions about the use of escalation clause addendum, please do not hesitate to reach out to your trusted local real estate attorney.
re to reach out to your local real estate attorney for guidance.
Sincerely,
Andrew Conaboy, Esq. aconaboy@berlinpatten.com
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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