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Here in Chicago it happens when a seller receives multiple offers. Generally the listing agent will ask for a "best and final" by a certain date. Buyers do not know what the buyers have offered.
We use escalation clauses quite a bit.
Ok, so my seller asked for best and final and we declined to go up. We were gambling they would prefer our no contingency offer. Is this escalation clause something I should have known about or tried?
But how to you submit 'higher competing offers' not knowing what the other offers are?
We call it a Dutch auction and it can be more difficult than a normal auction. You have to trust the agent to tell you the truth when you are told that another person has put in an offer of eg 1.7m, and decide whether to go higher. About a quarter of houses listed for auction here in Sydney are being sold pre auction, often for hundreds of thousands of dollars higher than the guide price. There is an acute stock shortage so people are very anxious to buy pre auction.
But how to you submit 'higher competing offers' not knowing what the other offers are?
I had a recent listing, received first offer before even going Active in our MLS (buyer walked up to the house while my seller was inside changing lightbulbs).. that offer "forced" our hand to going active and within the next 24 hours, I received 11 more offers, 5 of which had escalation clauses included (driving the list price up another 20,000+/-)
We cut offers off at 5pm, giving everyone by then that had submitted a chance to revise up until 9pm of the same day.. Some adjusted their offer, some stayed the same
Ok, so my seller asked for best and final and we declined to go up. We were gambling they would prefer our no contingency offer. Is this escalation clause something I should have known about or tried?
depends on the market imo. some listing agents dont bother with escalation, they want your highest and best upfront, so they dont have to sit down and calculate if offer #3 escalates higher than offer #7 because of a $1,300 bump vs offer #4 and their $1,500 bump which pushed them beyond offer #6 because they also asked for some subsidy etc etc etc
But how to you submit 'higher competing offers' not knowing what the other offers are?
You guess and hope your offer is higher or somehow tantalizing to the owners/sellers. You don’t really know the other offers, but if you walk in and here are a ton of people looking you most likely have competition.
Quote:
Originally Posted by Grlzrl
Ok, so my seller asked for best and final and we declined to go up. We were gambling they would prefer our no contingency offer. Is this escalation clause something I should have known about or tried?
depends on the market imo. some listing agents dont bother with escalation, they want your highest and best upfront, so they dont have to sit down and calculate if offer #3 escalates higher than offer #7 because of a $1,300 bump vs offer #4 and their $1,500 bump which pushed them beyond offer #6 because they also asked for some subsidy etc etc etc
What is in the best interest of the seller, not the listing agent? Shouldn't the seller—in consultation with their listing agent—determine ahead of time how offers will be handled?
I know I'd want as much money as possible (if the buyers and the deals are otherwise equal), and then I would also want to have time to scrutinize the buyers very carefully, as someone in another thread mentioned, a la their social media accounts, etc.
Ok, so my seller asked for best and final and we declined to go up. We were gambling they would prefer our no contingency offer. Is this escalation clause something I should have known about or tried?
An escalation clause is just a method of signaling you place a higher value on the property than your initial offer.
For example, you could be telling the seller that you think the property is worth as much as $500,000, but you will pay $450,000 unless they get a better competing offer.
It is just a means of openly trying to pay less than the value you perceive.
I'm in one state where regulators strongly discourage escalation clauses, and haven't seen one in years.
If I received an offer with an escalation clause, I would counsel the sellers to counter with the top number in the escalation clause, if it was an acceptable amount.
The buyers would have already signaled that they thought the property was worth that much to them.
Ok, so my seller asked for best and final and we declined to go up. We were gambling they would prefer our no contingency offer. Is this escalation clause something I should have known about or tried?
remember "I wouldn't pay $1 more"? And saying you gave your absolute highest and best?
In your case, all you could have done is say "We are negotiable on any and all terms, but that is our highest price"
What is in the best interest of the seller, not the listing agent? Shouldn't the seller—in consultation with their listing agent—determine ahead of time how offers will be handled?
I know I'd want as much money as possible (if the buyers and the deals are otherwise equal), and then I would also want to have time to scrutinize the buyers very carefully, as someone in another thread mentioned, a la their social media accounts, etc.
yes, and I'd assume it is discussed (atleast I do).
To keep things clean, some agents say no to escalation and just ask for highest and best
Separately, scrutinizing buyers social media pages seems a bit excessive.
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