Dear Monty: I am interested in buying a home. However, I just found out today that there is another offer on the house. I have not made an offer yet, but I don’t want to unless I know how much the other offer was. I want to know whether I should offer more. Are they (seller or seller’s agent) allowed to tell me what the offer is to bid more?
Monty’s Answer: The seller’s agent cannot tell you what another buyer has offered because it is against the law. That law does not bind the seller because the seller is not an agent. It would be perilous to approach the seller directly under these circumstances because the seller could see you as being underhanded.
They may not want to deal with a dishonest person if they get that impression. There are other reasons it may turn them off, but in my opinion, this is the main reason.
There Is A Solution
Ask your agent to show you an escalation clause sample (or samples). Some areas of the country call it an accelerator clause. There are a variety of such clauses with different strategies. I searched for examples of escalation clauses, and this page was the result. There are several questions for you to consider. How much more than asking is the most you want to pay for the house or the most you can afford to spend? Should you offer that price all at once or go up in increments of $500 or $1,000? How many times will you use the increments? If they accept your offer and you are financing the purchase, what if the appraisal comes in lower than what you offered? Will you be willing or able to pay the difference between the purchase price and the lower appraisal in cash? The escalation clause can be a complicated legal addendum to the standard real estate contract. Ask your attorney to review it before you sign it.Should You Use The Escalation Clause?
Do you have reason to believe the seller will wait for your offer? Maybe the seller and buyer will not reach an agreement. Is there a risk in allowing the first offer to play out? Sometimes you may be better off not using the escalation clause. While the act of introducing the escalation is negotiating, in a sense, you are limiting your ability to negotiate. How long has the house been for sale? Have they had other offers? If it is a new listing and you are willing to go all in, you may still lose the house.Will The Seller Accept An Escalation Clause?
Some home sellers state that they will not accept an offer with an escalation clause. They would prefer that every buyer submits the price they’re willing to pay. On the other hand, many sellers will try to get the most they can. It is worth asking your agent to ask the seller if they have a preference.One Last Thing
When navigating these waters, it is beneficial to understand the market in the immediate neighborhood. Also, use comparable sales data to establish a value range based on facts, not emotions. Your efforts here will strengthen your convictions to guide you.Richard Montgomery is the author of “House Money: An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com
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