Clauses That Get the House

In many parts of the country, established homes (not new construction) are selling in less than a week.

Every market has a pricing “sweet spot” where these short listing times are most common. In the Denver area, that number rose from under $300,000 to almost $350,000 in only one year. These homes typically receive multiple offers (between 10 and 20) within two days of the listing and with most of them being over the listed price.

So how do you get your offer accepted?

There are two clauses I have seen in contracts that tend to get the job done:

  • Automatic offer price increase
  • Guarantee to purchase regardless of appraised value

The “Automatic Price Increase” states that the buyer’s offer price will automatically increase to $1,000 over any other offer price the seller receives. So if you offer $300,000 and someone else offers $305,000, your offer automatically jumps to $306,000. You win.

By the way – if there is more than one offer with this same clause, the seller’s agent will probably ask you to submit your highest and best offer.

The “Guarantee to Purchase Regardless of Appraised Value” clause means that if the appraisal your lender requires comes in at a value that is below the contract price, the buyer will still pay the contract price (even though the lender won’t lend this much). This is stating that the buyer has access to any extra money needed to complete the transaction and will ‘bring cash to the table’ in order to close the deal.

As a seller, my ideal offer to accept would include both of these clauses. But, if I had to choose one or the other, I would choose the “Guaranteed to Purchase.” This clause tells me that the buyer has the funds and financing in place to complete the transaction.

Because it is typically done with a set price and not one that could go up, the buyer has already done the research and knows that they can fulfill the requirement. The big concern would be that the appraisal comes in much lower than expected. Research by the Buyer’s Agent typically will reveal a range of values that could be expected for the appraisal and the worst-case scenario should be expected. However, there is always a chance the appraiser doesn’t know the area or type of house very well and, on top of that, has a really big ego and thinks he or she knows everything. The lender will lend on the lesser of the appraised value or the contract price.

If you are going to use the “Automatic Price Increase,” be sure to put a cap on the price or you won’t know where it will stop!

As a seller, I would be very leery of an offer with this clause if the purchase is being financed with an FHA-insured loan from HUD. Here’s why: Homes appraised for FHA loans are individually identified and any appraised value for that home is assigned to that house for 90 days. This means that HUD/FHA will base their loan amount on that original appraised value for 90 days. If that value is lower than the contract price (or any later offer with FHA funding), you are stuck. We talked more about how this works in another post. You’ll want to understand how, in a market with home values increasing quickly, this could cost you thousands of dollars.

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