Explanation of Escalation Addendum

[John B.]

About to engage in a bidding war with some other investors, what are some good strategies to navigate this type of negotiation? 

[Charlie MacPherson]

@Account Closed@John B. An escalation clause states that the buyer will increase the offer price to exceed a bonafide, arms length competitive offer by $X,XXX to a maximum offer price of $XXX,XXX.  The competitive offer must be presented for verification.  Your title company or attorney should draft this for you.  If the local Realtor association has a fill-in-the-blanks form, your agent can do it as well.

These are great for sellers, but not so much for buyers.

Don't forget to put an aggressive expiration time and date on the offer.  I've done as little as 3 hours.  I'm always amazed at agents who give me 48 hours.  At that point, my job is to contact every person who has expressed even a passing interest in the property and see if they want to beat the offer I have in hand.

To increase your chances of winning, make the highest and best offer and eliminate as many conditions as you can.  Offer to close on the seller's desired timeline.  Be a nice guy.  That can actually help.

Finally, be fully prepared to walk away if your maximum price is exceeded.  Don't get caught up in the emotion of competitive bidding.  It's easy for a bidding frenzy to get out of hand, so be on guard for it.

Good luck!