Escalation Clauses

Whether you like them or you don’t, all offers must be presented

By Linda O'Koniewski

It’s been a long time coming.  We at RE/MAX Leading Edge want to cooperate and keep good relationships with our colleagues and competitors.  But it’s time to acknowledge what is happening in the market - some agents and firms are refusing to present offers with escalation clauses.  We suspect that the seller clients of these firms and agents have no idea that offers are actually being suppressed and subsequently how their potential sale price has been adversely affected.

Just today an agent wrote to me and asked, “Is this legal?”  It was a posting in MLS in the firm remarks which outlined instructions for offers (when they were due, include the lead paint form, etc) and barking, “Offers with escalation clauses will not be accepted.”  It was typed in BOLD.

Escalation clauses are but one strategy a buyer might use to distinguish their offer in a hot market that breeds multiple offers.

Apparently several real estate brokerages have conveniently forgotten some key elements of the National Association of Realtors’ Code of Ethics and the Massachusetts Professional Standards of Practice of the Board of Registration of Real Estate Brokers - both of which outline that all offers must be presented.

Thanks to our house counsel, Robert Bell, for the following:

According to the NAR Code of Ethics,

“Realtors shall submit offers and counter-offers

objectively and as quickly as possible”

Standard of Practice 1-6

The Board of Registration Professional Standards of Practice in 254 Code of Mass Regulations 3.00 (11) (d) states,

“Conveying Offers.  All offers submitted to brokers or salespeople

to purchase or rent property that they have a right to sell or rent

shall be conveyed forthwith to the owner of such real property.”

This isn’t to say that we don’t understand why an agent may not want to deal with an escalation clause.  It’s complicated.  They may not be trained on how to present them or work with them.  We know that some folks consider them an unfair advantage.  But it is a tactic available to every buyer.  And others suggest that without an escalation clause a buyer might bid considerably higher than the amount he might pay using an escalation clause.

But as the largest RE/MAX in New England and one of the largest firms in Massachusetts, our experience is that our sellers love escalation clauses.  Who wouldn’t want to entertain a strong offer with good terms AND an escalation clause of “X amount more than any other bonafide offer”.  There are many variations.  Some agents ask to verify the competing offer.  Others include a phrase, “which is not contingent on the sale of any property”, because those who have a home sale contingency may be willing to offer a high price since they are unable to commit to closing in a specified time frame.

Here’s the kicker…it seems that agents who are presented with escalation clauses on their listings and tell the buyer’s agent that they don’t like them, when forced to present an offer to the client with an escalation clause, often come back with a response from the Seller that says, “remove the escalation clause.”  It’s “shocking” to learn that their clients don’t favor escalation clauses.

Our Sellers, who have progressive agents who know how to explain and work with escalation clauses, have been excited to have the opportunity to push the price of their home higher to the willing buyer, and frequently that offer has the best terms.

It appears that the “objective” presentation of the escalation clause is lost on agents who have predetermined that it is not something they want to deal with in the transaction.  Remember, the code of ethics insists offers be presented objectively.

All we are asking is that agents follow the guidelines and present offers as written without bias.

After all, every Buyer should have the chance to make their best offer. Every Seller should know that every Buyer had a chance to make their best offer. When all parties cooperate and everyone has a chance to maximize their position in a real estate transaction all parties win.

An escalation clause alone does not make for a strong offer.  An escalation clause of a small amount can hardly compensate for weak terms or risky financing.

A quality Buyer’s agent will guide the buyer to make the most attractive offer.  Conversely, a strong Seller’s agent will guide the homeowner to create and accept the strongest offer.

Every strategy has risk and benefits. The escalation clause benefits both Sellers and Buyers under different circumstances. But it should never be ruled out as a matter of course.