You found the Cape Cod place you want and you're ready to place an offer. The problem is, in 2017, the supply of homes is at record lows and chances are, you could lose out to other buyers who offer to pay more. How do you give yourself an edge?
I spoke about this last month on Claudette Vickery's weekly Cape Cod Real Estate Show. My solution was an escalation clause. This is an offer that, when placed against a competing offer, pledges to beat the competition by a set amount.
Here's how it works. Suppose the house you want costs $375,000. You're ready to offer $350,000. But now you hear there is a competing offer coming in. You can still offer $350,000, but that might not be enough, especially if the home is new to the market. You can place a full-price offer, but even that may not be enough to beat the competition.
The problem is, you don't know the amount of the other offer. Only the sellers and their agent have that information, and they're not saying. We're flying blind. We don't want you to pay more than you have to, but you've decided it's got to be enough to get it. What if the other offer was only $340,000? Your initial offer of $350,000 would have been enough.
That's when I suggest an escalation clause. We write the offer so that we will beat the competion by $1,000 up to a limit. In this case we may cap our escalated offer at $376,000. Remember, if the buyers need a mortgage to finance their purchase, the lender might not appraise the house at more than the listed price anyway.
According to the Cape Cod and Islands Association of Realtors, escalation clauses are increasing on the Cape, due to the short supply of homes for sale. The CCIAOR says these offers are legal with the following stipulations:
Every offer should include a letter of prequalification from a lender, so you want to make sure you've got the escalation clause covered as well. After that, you're good to go.
Happy hunting and good luck.