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Is it a good practice to make an offer with escalation clause to beat other competitive buyers, with a cap clause to limit how much I will spend for a house? My realtor mentioned it when we first met, what is the pro and con? Will buyers generally like this kind of offer or simply demand best offer only?
Also my realtor will use the "standard cockie cutter "contract to make the offer for me, will this standard contract generally cotain ALL the exit clauses so I can withdraw my offer later without incur any penalties? Or should I wait for the attorney review to finalize all the exit conditions?
Thanks.
Last edited by artking09; 10-12-2013 at 01:21 PM..
Reason: typo
I'll comment on your second question. Probably makes sense to just use the cookie cutter contract to start with and then have your attorney make changes when an offer is accepted. No point spending money on your attorney before you even get an accepted offer.
In response to the first question- I never heard of an "escalation clause". We purchased our house in NJ 22 years ago and purchased (and recently sold) a commercial property in the last 12 years and never came across that.
In response to the attorney question- waiting until the offer is accepted might be a little late. The cookie cutter contract is the contract. The buyer presents the cookie cutter contract and if the seller agrees to the terms they have a contract. You can't make changes at that point. (You should a minimum have outs for not getting a mortgage and if problems come up at the inspection that you don't want to deal with).
We just bought a property in another state recently and we took the cookie cutter contract to the lawyer and he told us what changes to make. We presented the offer with said changes. It was not accepted (could not agree on price). Fast forward six months and we go back to the other state, find another property and put in same changes. This time contract (price) was accepted.
You don't need the lawyer to review the contract if you keep using the same one until it is accepted. You only need a review if you use a different contract or if the seller wants to make changes, in which case you get the lawyer involved. At that point you'll need him for the closing anyway- right?
Don't try to save a few bucks and in the process outsmart yourself with the biggest purchase you've probably made.
Some agents/sellers don't like the escalation clause. They rather just get your best offer. I'm not really a fan of it either, seems unfair to the other bidding buyers.
There are outs in the standard contract. Either side can cancel the deal for any reason in the attorney review period. You can back out for home inspection issues, and if you don't get your mortgage commitment.
The attorney will add contract riders and negotiate more with the sellers attorney during the review period.
Also my realtor will use the "standard cockie cutter "contract to make the offer for me, will this standard contract generally cotain ALL the exit clauses so I can withdraw my offer later without incur any penalties?
It's in writing. You are signing it. So, go over the contract and make sure you understand it! Ask your Realtor about the exit clauses.
You will likely lose your EMD if your offer is accepted but then you decide to withdraw. There should be no penalty to withdraw an unaccepted offer, but talk to your Realtor about this too.
Some agents/sellers don't like the escalation clause. They rather just get your best offer. I'm not really a fan of it either, seems unfair to the other bidding buyers.
Escalation clauses basically turn it into a second-price auction. If everyone used them you could save a lot of back-and-forth with offers and counteroffers. Though the fact that the seller can see the escalation clause invites gaming of it.
In response to the attorney question- waiting until the offer is accepted might be a little late. The cookie cutter contract is the contract. The buyer presents the cookie cutter contract and if the seller agrees to the terms they have a contract. You can't make changes at that point.
Of course you can. You can change anything in the attorney review period. Or just flat out cancel the contract all together.
If there are multiple offers, The escalation clause puts the buyer in a better position. Some agents don't like it, because it appears to be unfair to the other bidders. The fact is the buyer who is using the escalation clause, is one step ahead of everyone else, and it is the way his/ her contract needs to be presented.
Manderly6, you are correct. I did not take into account the attorney review period, in which time the attorneys can make changes and negotiate. My mistake.
However, I would not be comfortable signing a contract for such a large purchase that was not reviewed by an attorney. But that's just me.
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