July 16th, 2018 at 11:45 am

Fact Pattern: I am the listing agent. We received 2 offers. Buyer #1 offered $805,000 with an escalation clause of $5,000 over the highest and best offer not to exceed $840,000. The seller wants to accept Buyer #2 who offered $810,000 with an escalation clause of $10,000 over the highest verifiable offer not to exceed $850,000.

Multiple Choice Question: What is the purchase price? Pick the best answer:

A. $810,000.
B. $815,000.
C. $825,000.
D. $850,000. 

Answer: Answer A could be the correct answer. Because Buyer #2’s initial offer of $810,000 is already the highest offer, given that it’s more than Buyer #1’s initial offer of $805,000, Buyer #2’s escalation clause could arguably have no effect. Answer B could also be correct because Buyer #2’s is offering $10,000 more than Buyer #1’s $805,000 offer, or a total of $815,000. Answer C is probably the best answer. Buyer #1 is apparently offering $5,000 more than Buyer #2’s $810,000 offer, or a total of $815,000. Hence, Buyer #2’s escalated offer is $10,000 more than Buyer #1’s $815,000 offer, or a total of $825,000. Answer D could be correct too. Buyer #2’s offer is presumably $10,000 more than Buyer #1’s maximum offer of $840,000, or a total of $850,000.

The above scenario shows how escalation clauses can quickly become a hot mess, given the ambiguous language used. For example, we don’t know whether either buyer is offering $5,000 or $10,000 more than the other buyer’s initial offer or escalated offer. As the listing agent, advise your seller that the best approach may be to simply issue a counter offer to Buyer #2 requesting a purchase price of $850,000 and eliminating the escalation clause in its entirety (or issuing a Seller Multiple Counter Offer to both buyers eliminating both escalation clauses). That way, we don’t have to try to figure out what’s the correct purchase price, and we won’t have to give Buyer #1’s offer to Buyer #2 for review.

-Thank you to Richard Perez (Pasadena Office) for suggesting this week’s legal tip.

Copyright© 2018 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of July 16, 2018. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.

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