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With the uptick in multiple offers, some home buyers are finding themselves out bid. Recently areas around Milwaukee have seen homes being sold for above asking price and some buyers are frustrated to learn that their offer has been declined due to a higher offer or a cash buyer.
Next time, consider using an “acceleration clause” which would automatically increase the offer up to a specified limit, thereby, in theory, eliminating the back and forth between other offers, as the “offer” would accelerate up to its highest limit, if there were any competing offers.
Most agents I’ve found don’t know how to present it from a listing or buying perspective. Be careful to ask the agent if they know what an acceleration clause stands for and please have them explain. If they don’t know, then it may be in your best interest to consider using someone else. We have found that brokers are using this tool more and more frequently, around the Milwaukee area.
As a real estate broker, I am interested in the actual mechanics of how agents go about “proving” they have a higher offer, in order to invoke the acceleration clause. Are the offers actually submitted to the buyer’s broker, or is it done by word of mouth? And if it is by word of mouth, how do you know the listing agent isn’t just saying there is a competing bid, in order to get a better price for their client? A carefully drafted clause can take care of these concerns. Additionally, if the seller receives any other bona-fide offer, then you will want a copy.
Yet, another practical concern still exists. Setting the mechanics aside, assume an acceleration clause exceeds the listing price. The question becomes, will an appraisal support the increased amount? If an acceleration clause is being considered, the broker and buyer must consider what is the “maximum” value the market will support for this home, and not go beyond it.
There is one situation where an acceleration clause can be viewed as especially helpful. That is where a cash buyer intends to flip the house. Presumably, an investor knows its price point and margins. When there are numerous contractors looking at the same limited inventory, an acceleration clause might prove effective in this circumstance, in order to obtain the property. In this clause, the net price should minus any monetary contributions by seller (such as closing cost).
In summary, it is necessary for BUYERS and BUYER’S agents to be aware this clause is being used in a tight market. If a buyer really wants a house, it might be useful to include such a clause in the offer, however, it should only be used in light of what is an appropriate market valuation.