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Multiple Offers: Now What?

Posted on September 01 By Justin McHood

In parts of the country, there are currently bidding wars going on for homes and often at least one of the parties who is bidding on the property is offering all cash because they are an investor.

If you are not an investor and have recently lost one or two offers on a house that you wanted - there is something you can try... ask your Realtor to put an escalation clause in your offer.

An escalation clause is simply a clause that says something to the effect of "if there are multiple offers on this property, we will pay $500 higher than the highest offer." There are multiple ways to write an escalation clause - but the point is that if you put it in there, you should be the "highest and best" offer at some point in the process.

But...

If you are going to use an escalation clause, be sure to also include a "subject to appraised value" clause as well. That way, you will be sure that you are not paying more for the house than the appraised value. You will also not run into the problem of not being able to obtain financing if you put a 'subject to appraised value" clause because as you already know, lenders won't currently loan more than the appraised value on a home.

So for example, lets say that you put an offer in at $90,000 with an escalation clause that said you will be willing to be the highest offer by $1,000. The seller then gets a cash offer for $99,000, but agrees to sell you the property for $100,000.

If you have a "subject to appraisal" clause in your offer, then if the property appraises at $90,000 the seller will then have to agree to lower the price to $90,000 or the deal falls apart.

And often times that cash offer that was at $99,000 has already went out and bought another house and is long gone when it comes time to look for other offers.

And if everything works out just right, you end up getting that $90,000 house for $90,000 even though the seller at one time had a cash offer of $99,000.

Cross your fingers!

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