Seattle Residential: I Do That: The Multiple Offer Escalation Clause in Washington State

The Multiple Offer Escalation Clause in Washington State

The Escalation Clause in Washington State

A post by Cynthia Larsen, Can you find out how much the other buyer has offered? has inspired this post. In the comments I discovered, to my surprise, that many brokers had not dealt with escalation clauses. There were opinions about disclosure, and ethics and the rights of buyers and/or sellers, and some opinions about what agents might or might not do, give the circumstance of multiple offers.

man at barFirst, the normal disclaimer, I am not an attorney, never sat for the bar, and haven’t personnally consulted with an attorney in regards to this issue or this blog post. That said, here in the Northwest we’ve gone through several years and with no little trial and error, have developed a document that virtually all agents in Washington use when preparing an offer where other offers might exist.

The Northwest Multiple Listing Service (NWMLS) is the mls for most of Washington State. NWMLS has over 2,000 member offices and over 21,000 registered agents.

In the 1990’s we agents saw a need for some direction when preparing an offer you knew would have competition. But it wasn’t  until 2003 or so that companies started coming out with their own addendums addressing the issue. Windermere, John L Scott and Coldwell-Banker are the big three around here and all of them had versions. Our small office had an attorney draft 4 possible clauses depending on the wishes and situation of the buyer. The biggest problem was that agents’ “made up” wording was full of stories and rarely were complete enough to ever be enforceable. Our four variations addressed whether the competing offer’s “price” meant the stated price or the escalated price, and also addressed the issue of a contingent offer verses the non-contingent offer. There were conflicting thoughts on what the buyer’s limit or “up to” clause meant.

ConfusionTo say the least, with all of the individual company forms floating around, it got confusing and then some. Finally, the NWMLS came up with a from they provided “as a courtesy to members” in hopes of helping agents have something in common. And like all forms provided by the NWMLS there are disclaimers and instructions. I provide the complete package (as revised in July, 2010) here for your review: Price Escalation Addendum to Purchase and Sale Agreement.

You certainly may not agree with the concepts involved in the process we use here. It took us some time to accept the sharing of details of another offer. It usually takes a buyer several episodes of coming in second or third or even fifth when vying for a great property. It takes grit to view a property for a few minutes, pay an inspector to get over there now, and waive financing, along with being willing to go $X,000 over a competing offer. But for a few years it was routine and we see it more than a little bit here in 2011.

Keep in mind that the buyer’s offer expresses some rules they wish the seller to agree to, but like anything else, the seller is entitled to respond in any manner they please. We’ve seen sellers and their agent reply, “Since you think it is worth $XXX,000 by your stated limit, we will simply counter you at that price. The escalation addendum is removed.”

And many areas are seeing multiple offers on bank owned properties. Has anyone seen a bank counter offer lately without multiple changes and conditions of their own?

I’m curious to learn how other areas of the country deal with multiple offers.

 

 

 

 

Glenn Roberts
Retired

 

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Comment balloon 46 commentsGlenn Roberts • March 16 2011 03:05PM

Comments

Glenn, For our area, the options vary, but no auto escalation.  As the listing agent, our sellers may choose to work just one offer and let the other sit, or go back to both and ask for highest/best and then work with the more appealing from there.  From the buyers side, we just hope we get the opportunity for highest/best to be made.

Posted by Liz and Bill Spear, RE/MAX Elite Warren County OH (Cincinnati/Dayton) (RE/MAX Elite 513.520.5305 www.LizTour.com) over 7 years ago

Bliz - That was part of our growth process as well. The more buyer demand there is the more creative agents get.

Posted by Glenn Roberts (Retired) over 7 years ago

We frequently dealt with them in Virginia, not so much here.  Not a big fan, but they can serve a purpose and will use them when it makes sense.  I'll be following this to see what's happening in other areas. 

Posted by Cinnamon Wright, Assistant to Tish Lloyd (Wilmington Real Estate 4U 910.547.1446) over 7 years ago

Cinnamon - Use only when needed, of course. The buyer has to want something more than the next guy. They are just another tool in the buyer's agent toolbox.

Posted by Glenn Roberts (Retired) over 7 years ago

Glenn - While I am not a Realtor/agent selling or listing property, I have always been fascinated by the whole concept of the escalation clause.  I personally do not know any Realtors/agents who have ever used it and I do not believe that CAR or our local MLS board even has a valid form for it. 

If I were a selling Realtor/agent, I would definitely offer this option to my buyers.  However, since you are the first AR Realtor that I have ever seen blog about this, I need to ask.  Have you ever used this and what is your success rate in using this tactic in a multiple offer scenario?

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 7 years ago

Donne - I and many other realtors in Seattle and the northwest have used this form often. It has standardized the process for us. When the seller agrees to look at and respond to someone using the form, they are agreeing to share the other best offer tendered. Attorneys here have discussed this and have decided that there is nothing illegal about the seller and agent sharing another buyer's offer.A buyer may write into the offer that they don't want it shared, and thereby rule themselves out of the competition.

Success is hard to measure when two or more agents use the offer on the same property. As always, there is only one winner. But where you are the only person using the form in a multiple offer situation, you almost always win.

Posted by Glenn Roberts (Retired) over 7 years ago

Glenn ~  Had to lean on this -- excellent topic and terrific information.  Nice job; thanks.

Posted by Tish Lloyd, Broker - Wilmington NC and Surrounding Beaches (BlueCoast Realty Corporation) over 7 years ago

Tish - Don't lean to hard. I'm not sure how it will hold up yet :)

Posted by Glenn Roberts (Retired) over 7 years ago

Hi Glenn - thanks for writing this post. I'm looking at the form and am a bit confused by it. It would seem the buyer would submit it along with their offer to purchase, but the numbers in the calculation section are not known at that time. Does the buyer submit this form unsigned and the calclulation is done later?

Posted by Cynthia Larsen, Independent Broker Serving Sonoma County, CA (Safe Haven Realty) over 7 years ago

@David - No C.A.R. form that I could find. I wasn't sure if your extensive list of S.F. forms had anything like this.

I had a situation where I could have used this form ... just unsure at the moment why the signature lines are below the calculation part. It would seem better with a buyer sig line above the calculation and another one where it currently is, agreeing to the final terms after reviewing the other buyers offer.

The pleading paper format is interesting as well, especially with the numbers on the right hand side. Fascinating, Glenn!

Posted by Cynthia Larsen, Independent Broker Serving Sonoma County, CA (Safe Haven Realty) over 7 years ago

Cynthia - I too have asked my Realtor/agent friends if there is a CAR form I could see how it is done and they have indicated no such form.  I really think I'm going to do a little more research on this to see if there is a form for it here.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 7 years ago

Cynthia - Yes. The listing agent and seller fill out the numbers and get to the bottom line. Then it is returned to the buyer with the competing offer to make sure everyone is on the same page.

David - That random agent writing verbiage was a problem we sought to eliminate, and the in-office attorneys solved that for a time. Then the multiple put this up with disclaimers. But we all use it now.

Cynthia - Admittedly, that is an area of confusion. It assumes the seller and LO fill it out properly. There should be some form of verification in writing on the page that the buyer agrees with the calculations. So far, I've heard of no objections from this in practice.

Posted by Glenn Roberts (Retired) over 7 years ago

This is an interesting topic with good information. I have never heard of this form but will check on it Glenn. With multiple offers, a highest and best scenario is used for REO's.

Posted by Wanda Kubat-Nerdin - Wanda Can!, So Utah Residential, Referral & Relocation REALTOR (Prado Real Estate South) over 7 years ago

Wanda - agreed, and bank back rooms have their own way of determining what that might be.

Posted by Glenn Roberts (Retired) over 7 years ago

Glenn - Very interesting document and idea. I have printed out and will discuss with my managing broker. It's always fun to see how things are done in other areas. Thanks for the interesting post!

Posted by Peter den Boer, MBA,GRI, Associate Broker, Realtor (Atlanta Communities) over 7 years ago

You're welcome, Peter. That document is particularly good is it resulted from the multiple's attorney studying various documents provided by member attorneys. For once a form that came more or less from the ground floor. Like mentioned above, in a future edition I would hope for a confirmation signature that the calculations were correct.

Posted by Glenn Roberts (Retired) over 7 years ago

This would be a great standard addendum but I'm glad we don't have it here in CA because most brokers (and their E&O providers) limit their agents to the CAR forms.  I just write my own escalation clause which is very similar to what you have here.  I've had some success doing it although I've had them rejected by agents that are scared of them!  A standard addendum would level the field.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 7 years ago

I know I sound like a broken record sometimes, but our system of an online auction controlled by the Realtor eliminates all of the mess, and buyers know exactly what they must pay to get the property.  They remain anonymous during the auction (just a username).  I prefer to think of it as an "Online price negotiation platform" rather than auction, but it is what it is. One contract at highest offer is written after a transparent negotiation.  Buyer, Seller and Realtors all win. 

Posted by Mitch Gover (BidOnRealty.com) over 7 years ago

ooohhhh I LOVED me some escalation clauses when I was in the Phx market... out here in NC, I can not practice like an attorney, would need an attorney to draw verbage for me, and right now there is little need (mostly just short sales having bidding wars)... but I LOVE competing for and winning my clients the home of their dreams!

Creativity will go a long way if you use it correctly, the key is to make sure your clients know they are disclosing their highest and best offer... and might only have one chance at it!

Posted by Erika Madsen, Fathom Realty - Southeast Valley District Director (Fathom Realty) over 7 years ago

Tni - Make this the standard help a lot of us from using all of the agent drafted stuff" that maybe meant what it said and maybe not.

Mitch - Granted, in some cases an auction is the best way to get the highest price or a piece of goods, property or otherwise. In many cases consumers just won't go that way. I'm also not sure that online transactions of any kind, especially auctions are 100% transparent.

Erika - Same thing here. Not an attorney, so I don't write verbiage. Would hate to use one on a short sale since the bank is just going to chew it and spit it and make other alterations as they see fit over the motnhs to come before closing.

For anyone following the above, my broker told me that the calculation lines are merely a worksheet and the buyer is only agreeing to them if the calculations are correct.

Posted by Glenn Roberts (Retired) over 7 years ago

I investigated escalation clauses a couple of years ago, when some very motivated buyers were getting beat out on their offers.  Even put the verbiage into a couple of offers, but it never went anywhere.  Then, not long after, I noticed an REO listing where it specifically excluded the use of escalation clauses.  

Appraisals have been an issue in our area, so we are more likely to see the use of an offer to pay a certain amount over appraisal, rather than a certain amount over another offer.  That one has been very successful for me, but you have to be working with a buyer who has some cash going into the deal.  Seems that with the escalation clause, you also could run up against appraisal issues, and then need to put cash into the transaction to make it work.

I'd use it with the right client and the right property, but I'd really rather a buyer just make their best offer, and not try to game the system with the escalation clause.

~Melanie

Posted by Melanie Serrato, CA Realtor - Corona-Norco-Eastvale Homes (Melanie Serrato, Rawlings Realty ~Corona, Norco, Eastvale Ca) over 7 years ago

Melanie - All of your points are valid. Smart sellers add the clause that the buyers will make up the difference from a low appraisal in cash. But you really do need the majority of the agents in an area comfortable with the form. It's not easy to get there. I like offering to make up the appraisal difference up front.

Posted by Glenn Roberts (Retired) over 7 years ago

Multiple offers happen mostly on waterfront listings in my market.

Posted by Andrew Mooers | 207.532.6573, Northern Maine Real Estate-Aroostook County Broker (MOOERS REALTY) over 7 years ago

Andy - It's nice to have them somewhere...maybe.

Posted by Glenn Roberts (Retired) over 7 years ago

Thank you for bringing this to my attention and for supplying the form.

Posted by Mark Montross, Listing and Buyer Specialist (Catamount Realty Group) over 7 years ago

Mark - No problem. Cynthia made me do it.

Posted by Glenn Roberts (Retired) over 7 years ago

I used that technique (and had my own form back then) in the heat of the market. It worked! I specifically remember 2x I used it when the buyers just had to have a house and the other agent involved was stunned and had never seen such a form. 

Posted by Erica Ramus, MRE, Schuylkill County PA Real Estate (Erica Ramus - Ramus Realty Group - Pottsville, PA ) over 7 years ago

Hi Glenn -- I have found some agents don't understand how MO work.  In general, I am not a big fan of them, but it also depends on many factors: who is the market favoring? Is the seller lucky that two buyers showed up or is it just coincidental and both buyers may decide to walk?  So many potential pitfalls if both agents and both clients don't understand the process intimately.

Posted by Chris Olsen, Broker Owner Cleveland Ohio Real Estate (Olsen Ziegler Realty) over 7 years ago

Erica - Like most changes in real estate, new methods gain acceptance slowly.

Chris - I'm not a big fan of them either, but for a buyer they offer a means of negotiation and for a seller they offer a systematic method to sort through what otherwise might be a mess. Most are planned by a slightly low price in a high demand market. Buyers can always walk. The point is, their desire for it is validated by someone elses desire for it. The same but opposite side of the coin that says, "Well it's been on the market more than 100 days so there must be something wrong with it."

Posted by Glenn Roberts (Retired) over 7 years ago

Glenn, I just presented multiple offers on Wednesday night.  I go through the PAs and list out all the differences.  I also check all the similarities so the seller understands the individual offers.  I think that your "solution" would work provided you don't have agents saying the escalation clause is removed.  But, as you, I am not an attorney.  So, I can't say for sure. 

Posted by Suzanne McLaughlin, Sabinske & Associates, Realtor (Sabinske & Associates, Inc. (Albertville, St. Michael)) over 7 years ago

Suzanne - That removed thing is at the choice of the seller, often advised by the agent. There are all kinds of sellers. Some are thrilled that more than one person wants to buy their home and try their best to work toward a mutually fulfilling closing. Others are out to get all they can. It's a personality thing, and we as agents just have to deal with whatever get thrown at us.

Posted by Glenn Roberts (Retired) over 7 years ago

Hi Glenn,

Very interesting information! Definitely seems strange to be able to see what others are offering, and I don't believe that it's common practice here in CA. You practically get sued for even mentioning any details about other offers and buyers : )

Have a great weekend!

Gina Lemos

Posted by Momentum Realty, Orange County CA Real Estate Agent (North Orange County CA Real Estate Specialists) over 7 years ago

Gina - You only see what the others have offered after the seller chooses your offer. It's a lot better than the free for alls that went on previously.

Posted by Glenn Roberts (Retired) over 7 years ago

I haven't used our version here in about a year, but in 2007 and 2008, I was having to use them about 25% of the time. Though I enjoyed those times, I'm not sure for my buyers that I want to go back to those days.

My first sold listing back in 2005 became a multi-offer escalated sale, was great for my sellers, but no one was happy in the end from the buyers point of view.

Posted by Respect Realty LLC, Brokers - Oregon / SW Washington Real Estate (Respect Realty LLC) over 7 years ago

Todd - Funny how buyers want to be better than other buyers, but don't want to be pushed. They like the pre 1990 days when getting there first with an offer had some sway. Seller representation is better now, and buyer representation exists. That's the good news.

Posted by Glenn Roberts (Retired) over 7 years ago

I think it's a good idea. I learned a couple of future tips on multiple offers should we ever have them again LOL. We just do it alot easier, or at least I do, like write in $500 over competing offer.  That's always just worked too.

Posted by Lyn Sims, Schaumburg IL Real Estate (RE/MAX Suburban) over 7 years ago

Lyn - That worked here for a while, then things went up a notch. What if the competing offer has an escalation clause? Is it just $500 more than the offer, or $500 more than the max of the offer. What if closing dates were different. Or something else subjective. Often the highest dollar doesn't win. That is a good lesson for all.

Posted by Glenn Roberts (Retired) over 7 years ago

Glenn,

I've never seen an escalation clause.  We do not have multiple offer situations that I'm aware of.  Waaay back there when I first started, there were multiple offers on a waterfront listing that I had.  The seller chose which one he wanted to go with and discarded the others.

Offers are considered confidential information here and we are not to talk about them.. even after there is a contract on a property... it is confidential until it closes and becomes public information so I'm not sure that an escalation clause would work if I understand them correctly based upon your post and the comments. 

I am going to download your form and look at it, haven't done that yet.

I love posts where I get to learn something new or something that is done differently elsewhere.  Thanks for writing it and sharing.

Posted by 1 ~Judi & Don Barrett & Chassy Eastep - Integrity, BS Ed, Integrity Real Estate Services -IDABEL OK (Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745) over 7 years ago

Judi -  When one proffers an offer it is the sellers. There is nothing that prevents the seller from saying I've got $450,000, who will give me $455,000. Sellers don't have the restrictions we do.

Etiquette among agents is a different thing. What agents do has limit. What sellers do is up to them.

Posted by Glenn Roberts (Retired) over 7 years ago

I listed an REO in which the bank priced it way under market value, and one buyer submitted an escalation clause far above the highest offer. The bank honored the addendum and sold it to them for $500 over the 2nd highest offer. They could have made an additional 20% by countering at buyers top amount, but chose the honest route.

Posted by Julie Baldino, Opening Doors to New Chapters... (Front Door Realty) over 7 years ago

Glenn, during the wild times a few years ago, we had the battle of the escalator clauses in almost every offer I wrote.  And the whole idea that the buyer was willing to go up only if there was another offer, and only $XXXX dollars above the other offer's price (or escalator clause) made it hard for sellers to just counter at the escalator's ceiling.

The problem is that all offers are not equal in ways other than the price.  In some cases, the escalator clause was attached to an offer with other contingencies - or with unqualified buyers.  And we had a lot of cases where the winners of the previous day's bidding war woke up with that "What were we thinking?????  Get us out of this NOW!!!!!" feeling.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) over 7 years ago

Goodness.  How did I miss this. 

So many good ActiveRain posts.  So little time.

Excellent. 

Our escalation clause is not an addendum to the contract.  It's used to negotiate the price and then, once the contract is amended, is filed away. 

Bottom line, it works the same.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 7 years ago

Julie - that is a touching story. They could make a movie with Jimmy Stewart playing the lead :)

Patricia - Buyers whined at first because they would have offered more if they knew and then they started putting up blocks after a while because they felt used. It's just another challenge for us agents.

Lenn - There is too much good writing to see it all, Lenn. Thanks for stopping by.

Posted by Glenn Roberts (Retired) over 7 years ago

I have written several offers with escallation clauses but the listing brokerages have not accepted them.  I think a prudent listing agent should love them since it can raise the price to each multiple offer bid up to their highest and best.  I am thinking of having an attorney draft one that I can have in my possession for when my listings have multiple offers here in Boise, Idaho.

Posted by Jim Paulson, Owner,Broker (Progressive Realty (Boise Idaho) www.Progressive-Realty.info) over 7 years ago

Jim -Attorney written is a good thing. Having something that the local community of RE agents is comfortable with is important too.

Posted by Glenn Roberts (Retired) over 7 years ago

The Texas Real Estate Commission has prohibited agent here from using escalation clauses.

Posted by Richard Weeks, REALTOR®, Broker about 5 years ago

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