Archive for March, 2013

The answer is it depends.

With the up tick in multiple offers, some home buyers are finding themselves out bid. Recently areas around Boston have seen homes being sold for above asking price and some buyers are frustrated to learn that their offer has been declined due to a higher offer or a cash buyer.

When talking recently with a real estate broker, she lamented such a story. She however added that on the next offer, she was going to use an “acceleration clause” which would automatically increase the offer up to a specified limit, thereby in theory, eliminating the back and forth between other offers, as her “offer” would accelerate up to its highest limit, if there were any competing offers.

Intrigued by this, I asked around and indeed found that brokers are using this tool more and more frequently around Boston.

As a real estate attorney, I am interested in the actual mechanics of how agents go about “proving” they have a higher offer in order to invoke the acceleration clause. Are the offers actually submitted to the buyer’s broker or is it done by word of mouth. And if it is by word of mouth, how do you know the listing agent isn’t just saying there is a competing bid in order to get a better price for her client? A carefully drafted clause can take care of these concerns.

Another practical concern still exists. Setting the mechanics aside, assume an acceleration clause exceeds the listing price. The question becomes, Will an appraisal support the increased amount? If an acceleration clause is being considered, the broker and buyer must consider what is the “maximum “ value the market will support for this home and not go beyond it.

There is one situation where an acceleration clause can be viewed as especially helpful. That is where a cash buyer intends to flip the house. Presumably an investor knows its price point and margins. When there are a number of contractors looking at the same limited inventory an acceleration clause might prove effective in this circumstance in order to obtain the property.

In summary, it is necessary for buyers’ agents to be aware this clause is being used in a tight market. If a buyer really wants a house, it might be useful to include such a clause in the offer, however, it should be used only in light of what is an appropriate market valuation.