Escalation clause- please help!

[Jimena Tuis]

Hi, we just put an offer for a ranch yesterday in a super hot market. We were advised to include an escalation clause. The asking price is $898K. Our offer was $925K with an escalation clause of $5K. The sellers came back rejecting this offer and asking $950K and saying they would cancel the open house from today. There is no evidence of anything driving up the price. The seller said that the other two offers came lower. I believe what is driving up the price is them seeing our “cap”. How should we proceed? What could be our counteroffer? Should we just step out? It feels unfair that nothing else is driving the price. Thanks!

[Charlie MacPherson]

These kinds of negotiations can be tricky.  The escalation clause should include language that says something like "Offer amount will be increased by $5,000.00 over a bona fide, arm's length offer up to a maximum of $930,000.  The competitive offer must be shared for verification."

If this strategy works properly, you might beat a competitive offer.  The problem is that you have now exposed your maximum offer.  A sharp seller will counter at that maximum offer, but it sounds like your seller wants even more than that.  He is playing the "over-pay me and I'll remove the competition for you" game (canceling the open house).  That's risky for him because somehow he (or somebody) told you that the competitive offers were lower than yours.

Now it depends on how much you want this property - and at what price.  If you're willing to play a little hardball, you might resubmit an offer at $925,000 or $930,000 with no escalation and include a tight expiration, i.e., "this offer expires 4 hours from [whatever time you send it]".  And have your agent tell the seller that this is your highest and best offer and you will not submit any further offers.

If you are afraid of losing out on the property, you can either counter at something like $940,000 or just pay the $950,000, but if other offers came in lower than yours, my bet is that you're over paying by quite a bit.  If the new jacked-up price no longer works for you, don't be afraid to walk away.