Really Want That New House? Consider an Escalation Addendum

Finding the right home is just the beginning. The next step is to acquire that home. Understanding your home purchase options is critical. An escalation addendum may be a solution.

So you have found that perfect home. You tell your Realtor® you want to make an offer. Your Realtor® calls the listing agent and asks if there are any other offers on the home. The listing agent says no but there have been several showings and an abundance of interest. In fact, the listing agent says that another agent is likely to bring an offer.

After hearing there is other interest your mind races. What to do next? How do I get the home and the best deal at the same time?

Your real estate agent does a market analysis on the home. It shows that previous properties sold for less than what the home you have chosen is listed for — Arggghhh!!!

The scenario I have laid out is becoming more common in the Berks County area. It has been almost nine years since we have seen significant home price appreciation and things are changing. On top of that, it is now prime home selling season which means we are likely to set new and higher value standards.

The analysis of past home sales will likely lag the market and show that many homes are listed higher than they should be.

As we make our way through the coming months, nice homes are likely to sell at or above their market value range. Many of these homes will have their prices driven up by the sheer desire and demand of the home buying public. This is how the real estate market is supposed to work. It is something we will gladly have to get used to in the near term Berks County home market.

Back to the strategy portion of our show…

I advise my buying clients to make their offer based firstly on their desire to own the home and secondly on the market analysis. If someone plans to live in a home for 20 years as opposed to 5, the market analysis has less gravity. This is indicative of a strong desire being greater than the present value (long term investing).

Now the issue of the other interest in the property…

When there is more than one offer on a home the listing agent often notifies all interested parties to bring their highest and best offer, this means price, terms and conditions. The reasoning is that there is NO auctioning here!!! The best offer will be the only one that gets accepted or negotiated. The other offer(s) are done.

Now is when the escalation addendum comes in…

An escalation addendum allows you to make an offer and a counter offer to other offers at the same time. Say you offer $200,000 on a home listed at $209,900 but are willing to pay $210,000. You may agree to offer $500 over any competing offers. This means that if someone else offers $205,000 your offer would automatically be $205,500 but if someone offered $211,000 your highest offer would be the $210,000 you proposed in the escalation clause. I call this end number the cap.

An interesting note about the escalation clause is that in order for the price to be escalated, the listing agent must present the competing offer as evidence. Another thing is that all offers are considered NET. This means that if there is a seller credit involved, it does not escalate the offer. So if someone offers $211,000 but has a $5,000 seller credit, the NET offer is $206,000 and your escalated offer would be $206,500.

The best thing to have when buying a home in Berks Count or anywhere for that matter is a real estate agent who can navigate and negotiate your deal using all the tools available. Finding the right real estate agent is as important as finding the right home. After all, what good does finding the right home do if you never get to own it.

Knowledge is Power!

Jeffrey C. Hogue