Broker and owner of Carleton Realty, Bob Kutscbach discusses 3 offer winning strategies to use in today’s real estate market.
First up is escalation clauses. An escalation clause says I will pay you a certain amount ($250,000) for your home or $1000 more than the highest offer not to exceed $260,000. If there are no offers higher than yours, you would get the house for $250,000. However, if someone else bids $254,000 your offer would automatically be $255,000. You are able to ask for proof of the other offer.
Escalation clauses are fairly common, although their use has decreased a bit in recent months. An escalation clause is a way to be competitive with other offers. There are a lot of subtle nuances. Your offer says that you will go $1000 more than the highest offer but someone else’s says that they will go $1500 more than the highest offer they will win because their increment is $500 more than yours. Some agents and brokers don’t like this because it can raise questions about what the highest offer was. Did it include closing costs, home warranty, or title insurance? Some brokers discourage escalation clauses because of these disagreements. In the end, they will often counter you at a solid number to prevent these arguments.
Back-up offers are a great tool. Historically, about 40% of contracts that are accepted fail to close. The 2 biggest issues with the closing are something found in the home inspection and financing falling through. Buyers may be pre-approved but when the lender looks at the nitty-gritty and turns down the loan. Having a backup offer that the seller has guaranteed if the primary offer fails then you get the house at the terms that you have agreed to with the seller. A good agent knows how to write a good backup offer. One that says if the primary offer fails, no question, your offer will move into the primary position.
The 3rd technique is curb offers. Many buyers are uncomfortable with curb offers. These types of offers are common in the investment community, where we don’t want to disturb the tenant. We negotiate the contract and then after the terms are agreed to and the contract is signed, the buyer can then go into the house and decide if they want it or not. Some buyers are disturbed by not getting to see the house first. In today’s market often the first good offer gets the house. If you are not the first or second person to see the house when it goes on the market, then you stand a chance of getting the home. You must go in with a very strong offer, contingent on your approval and if you don’t like the house you can terminate your offer. Curb offers are being used to beat the competitors and make the offer before anybody gets to see the house. Some sellers like curb offers and some don’t. Some sellers are wary that you could void the offer and they will lose all excitement for their listing.
If you have questions about these techniques, please reach out to one of our agents!