Esca-What?

| Tuesday, September 11th, 2012 | No Comments »

In my last blog post many moons ago, I mentioned that my next post would be about escalation clauses. So much has happened since then so there’s been a bit of a delay with this post. Ironically, so much of the “so much that has happened” has to do with escalation clauses. Funny. Anyway, a good majority of my last transactions have had multiple offers which have included escalation clauses. Confused yet? And if you could really give a rip about escalation clauses at least skip to the last paragraph.

Ok, in case you’ve been living under a rock you have probably heard that our real estate market has picked up. A lot. We are talking a-home-goes-on-the-market-and-doesn’t-just-get-one-offer-but-sometimes-two-or-three-or four kind of thing. And what happens when you have multiple offers is that those buyers REALLY want that home because well, rates are low and there really isn’t a lot of homes on the market (supply and demand you know) so in order to be the winner-winner-chicken-dinner a buyer will put in an escalation clause. In short, that means they are willing to beat the best offer by a certain amount and are willing to pay above the asking price of the home. It’s really a lot more complex but I’ll save you the details and just tell you that its crazy and nuts and stressful for all involved. I can give you a real life example: a home went on the market for $499,000. In just days there were 4 offers and 3 of the 4 included an escalation clause. After all was said and done the sellers accepted an offer for $555,000.

While the outcome for sellers and the overall market has been great, there are some definite drawbacks to multiple offers and escalation clauses. First of all, multiple offers means there can only be one winner so in that last scenario, I had to call 3 agents with bad news. Secondly, more offers is not always better (I’m pretty sure whoever started the phrase “less is more” was talking about this exact scenario.) If all the offers are pretty similar, it makes it very difficult for the seller to pick just one. And lastly, most of the time the home is selling for more than it was listed for so you have to hope it ends up appraising for that much. Unless of course it’s a cash offer which is another post for another day!

So yes, a crazy market with hopefully no end in sight. It’s predicted that there will still be a shortage of inventory over the next 4 months and rates will remain low….we call that the perfect storm. And by “we” I mean “me” but doesn’t it sound better if a whole bunch of us are saying it?

Last but not least here are a few things I heard in my office meeting this morning. I think it sums up the market pretty good:

1. An agent received 29 offers on a home (no joke because she really doesn’t seem like the funny type)

2. A house that was listed at $1.5 million sold for $1.9 million (do the math, that’s FOUR HUNDRED THOUSAND DOLLARS over the list price)

3. An agent had an offer 4 hours after it was listed

4. As we were walking out our broker said we need to focus on getting sellers to put their houses on the market. Are you one of those?

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