Acceleration Clause When Submitting A Home Offer

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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.


The Pros and Cons of Open Houses

open houseA great deal of sellers often speculate whether Sunday open houses are worth the bother. Some worry about the security of their home, while others complain that agents seemingly use open houses to pick up clients, rather than sell their home. Do the rewards really outweigh the risk?

Convenience, Visibility, and Outreach

To start, you may want to think about the convenience, visibility, and outreach an open house has to offer. Letting your realtor host a public open house provides additional market exposure that, in most cases, will increase your chances of a sale. Plenty of sellers have sold their homes without ever having a public open house however, many more sellers will admit that they actually found their home at a Sunday open house. Another factor to consider are those nosy neighbors. Once they spot your open house, they will impulsively want to get the word out, and inform everyone they know, that your house is open and for sale. Although they may not be in the market to buy, those nosey neighbors will instinctively want to fill your home with someone they already know. Additionally, there are the buyers who may be on the fence about moving, or those who are aren’t even considering moving at all. Some, will decided to take the leap after seeing an exceptional property at a Sunday open house. Lastly, those who resist the notion of open houses insist that only serious buyers will make appointments to see their home however, most of today’s buyers are just too busy. Many of them can’t take the time off during the week to go on showings. Sunday open houses provide an easy way for busy buyers to consolidate their home search.

The Serendipitous Buyer

Yet, another fact to consider is the Serendipitous Buyer. You may think this one is the exception to the rule however, it is actually quite common for buyers to purchase a home they’ve seen at an open house. Particularly in a buyers’ market. In this type of market, buyers are usually out in force, canvassing open houses, searching for new homes. Some buyers, like to preview a property casually at an open house before taking it more seriously. This is particularly true for the home that may be lacking in curb appeal, or may need some fixing up. For these homes, in most cases, buyers won’t bother taking the time to look at a house in which they have doubts, however, if that home just so happens to be open, often those same buyers who wouldn’t commit to making an appointment, won’t mind stopping by just to take a look. In the end, buyers are often pleasantly surprised to find they actually like the house they thought wasn’t worth considering.

Security

Without a doubt, there are many good reasons not to have an open house. If your home is filled with irreplaceable valuables, you may want to consider forgoing the public open house. It may mean losing a buyer or two, however, this might be a reasonable trade-off for your peace of mind. However, if you’re in favor of the open house, but have security concerns, ask your agent to bring a colleague along to provide extra supervision. The majority of agents will be more than happy to accommodate.

In closing

Typically, the rewards of an open house will greatly outweigh the risks. Although open houses do potentially benefit real estate agents, in the end, you may find the added exposure, and expertise of a professional real estate agent well worth the risk. If you still have concerns, take my advice and talk it over with your realtor. You’ll be glad you did!