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Posted by on Nov 24, 2012 in Bidding Wars, Tips, Advice & Links, Why You Should List With Jim | 1 comment | Print Print

Escalation Clause

A common ploy used to win a bidding war is the “escalation clause”.  One of the agents in the Arroyo Hondo bidding war included this phrase as part of his highest-and-best offer price:

Buyer will pay $5,000 over the highest offer.

The escalation clause is an accepted form of negotiating, because most agents don’t give it much thought – it’s just looks like another trick in an environment full of gimmickry.  I think most listing agents would allow it to determine the winner too.

I didn’t.  Why not?

  • In a $1,110,000 sale, every buyer would pay $5,000 more to win.
  • I had already gone around the horn with each agent to get them to submit their highest-and-best offers, and I didn’t want to jostle them more and risk losing them.  Buyers don’t like bidding wars, and if they feel like they are being played, they might bail – which isn’t good for the seller.
  • The escalating buyer may be a reluctant buyer, because he got stuck with somebody else’s price + $5,000. I don’t want him to blow out later, or load up on repair requests out of spite.
  • Buyers deserve a fair contest.

I discussed it with my seller, and he agreed – no escalation clause. I relayed that to the escalating agent, and told him that his current price was in last place, and to feel free to submit a higher number.  They didn’t, which made me think that they might not have closed if they felt like they got stuck with a much higher price point.

I think listing agents should consider the pitfalls before employing any exotic terms – but do they think it out?  My goal is to close the original escrow, because if the first deal blows up, you can’t predict that the next one will be at the same price – and historically they are usually less.

Here are other realtor viewpoints – note the cavalier attitudes:

http://www.speakingofphoenixrealestate.com/realtors-negotiation-tactics-the-escalation-clause/

Their comments show how the typical listing agent thinks – that the highest price automatically wins.  If you are a buyer, it might be worth trying if you think that the listing agent is weak and inexperienced, but if you are on the seller’s side, give it some careful thought.

1 Comment

  1. Couldn’t agree more

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