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Escalatory Addendum why and why not
March 9th, 2007 8:50 PM

What is it: It is a tool that was used a lot in 2005 early 06, it is a single page addendum that is launched once a buyers agent is informed that there are multiple offers. Remember it is not the Sellers agent responsibility to notify you. You must be asking.

What is its goal: It provides you with the ability to keep your buyer in the game without overshooting the value of a home

How does it work: It defines your offer price. The over price (a dollar amount the buyer is willing to pay over the top of any competing offer). The walk away price (the maximum including the over price you are will to pay for the house).

The key here is the Sellers agent must provide you with a copy of the signed offer from another buyer that supports the new price. At that time the Sellers agent can modify your contract to show that contract plus your over price as the new contract price for your buyer. Once initialed by your buyers you have a deal with contingencies. But you have a deal. Prior to this tool when you had a multiple offer situation what did you do? We would look at the comps and try to toss a dart at a number we thought would win. With this tool you can still come under asking price and win.

Does everyone understand it? No they do not. They are not sure how to handle it. Just remember the Sellers agent has a responsibility to get the best deal for their client. That is defined in many ways. What they should do is notify all parties that we have multiple offers and we will be presenting BEST AND FINAL OFFERS at a specified time. Once they receive all offers they should then select the highest offer with acceptable contingencies. Then compare that to the top walk away Escalatory and its contingencies. The seller will choose the one they feel most comfortable with. Our job is to fairly present all offers. That is the reason for this blog.

Why not: If your buyer cannot comprehend or does not trust that the contract the sellers agent is required to provide us is a true contract. You may not want to use this tool. Otherwise it is a great way to get a hot property for the least amount you must pay.

I.E. May 05 a lovely waterfront home in Oviedo Fl. came into the market early Saturday morning. My wife (and partner) called me with an alert for one or our buyers. I was showing property to another family at the time. She called the other family and we scheduled a time 2hrs later to meet at the home. When I was 10 minutes away our buyers called me in a panic stating that all these families and Realtors where walking through the home. I told them we would be in the house in 10 minutes and I had everything we need in my car. We walked though the home and it was perfect, went out to the car and I said lets pull around the corner and talk. They were pumped and smiling, I showed them the comps (not much activity in this area in the last two years) so I explained that this home would go quickly with many offers. We had talked about an Escalatory addendum before so they where comfortable with the language. We choose our numbers and our contract number and launched an offer.

The Results: They collected offers for two days. Over 20 were submitted 5 of those had Escalatory addendums. Our offer price was Full price $199,900 (remember May 05). We agreed to provide an over price of $2,000 and we had a walk away price of $225,000. The best offer they had was $215,000 so we according to the addendum paid $217,000 for the home.

We won the home and that family has referred over 7 transactions to us since that time. If you want people to say you’re professional, you must understand all the tools.


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Posted by Jim Ruddy on March 9th, 2007 8:50 PMPost a Comment

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