Bidding wars are heating up, often with escalator clauses, for sought-after listings in Northern Virginia
January 20, 2013 – I’m seeing them more frequently with each passing month. Not only are more attractive and accurately-priced listings for single family homes, townhomes and condominiums drawing several offers, we’re finding more buyers willing to include escalator clauses.
Escalator clauses were a common feature of bidding contests in from 2003 through 2006 throughout the Metro Washington, DC area. With notable exceptions, one had to include them in their submissions on top of matching the asking price.We may not be quite there yet throughout the entire DC region. But we may be there soon with homes for sale that have good locations, have been kept relatively up-to-date and are priced realistically to begin with.These factors in the Northern Virginia, DC and close-in Maryland suburbs figure to play even stronger roles in 2013 and beyond:
1) pent up demand
2) low interest rates
3) a steadily improving economy, and
4) the stable federal and contracting workforces.
Average home prices in Northern Virgina home rose 13% year-over-year in 2012, that’s the most drastic increase in more than six years.
If you find yourself competing with other others, first understand how escalator clauses work. Don’t go it alone. Working with a Realtor you trust can keep you from overpaying or making some other mistake you’re bound to soon regret.
It is quite possible that deploying an escalator clause might needlessly inflate the selling price. That’s great if you’re the seller, not so if you’re the buyer.
A contract might say something as simple this:
“In the event of multiple contract presentations for the property located at 12 Main Street, I hereby increase my purchase offer by $5,000 above any alternative offer, providing that my maximum purchase price shall not exceed $650,000.”
If an owner receives several full-price offers, the details of their escalator clauses (e.g. any maximum offering price) should push one on top of the others. Before you choose any such option, however, it helps for sellers to look at which offer represents the best chance to close, especially if the owner is in a hurry to sell.
At one extreme, the best offer might be an offer with no contingencies, such as need for mortgage financing, the sale of an existing home, and an inspection of the property for sale. (Remember, home inspections still make sense so you at least know what you're getting yourself into.)
At the other extreme, the escalator clause might come with a a few strings attached, attached, e.g. a faster than normal closing to register children for the next school year.
Please call me at 703-593-9432 if you have any questions. And be sure to mention you read this on my blog.