Several times recently I’ve been in the position where I have either turned down listings or not “gotten” them because I’ve refused to list them too high. While we may be in a bizarre competitive ”Buyer’s market” in much of the Phoenix market right now, buyers still aren’t willing or able (we’ll talk about appraisals later) to pay too much for a house. Sometimes, I’ll if push comes to shove I’ll allow a seller to list the property higher than I think the market will allow for as long as we have an automatic price reduction in place. Now, all you purest REALTORS who are up in arms that I just said that, I do know that the first couple of weeks is when we’ll get the most showings and activity and I make sure a seller is fully aware of that. But if they still persist and I think more reason can be seen later I’ll allow for it.
So once the house is listed how do we tell if a house is over-priced?
That’s when I use what I call the Rule of Tens.
- If the house is on the market for 10 days with no calls or showings…it’s over-priced
- If the house has 10 showings and no offers…it’s over-priced
That’s it.
Plain and simple…my Rule of Tens.
On a totally personal note: 10 is my youngest daughter’s favorite number. Her name is KiersTEN and this year she’ll be 10…on 10/10/10.
I thought I’d share with you a bit of negotiation strategy that just helped my buyers secure the property they wanted with 5 other offers on the table…
Like it or not each REALTOR has their own “bag of tricks” (if you will) when it comes to negotiation tactics. Now, I don’t really mean *tricks* as in the bad, unethical form of the word but rather negotiation tactics which have been found useful and advantageous to representing the buyer or seller in a transaction. With the competitive seller’s market that has reared its ugly head in the lower end market lately I have found it useful to pull out the ESCALATION CLAUSE from my bag. Dictionary.com defines ESCALATION CLAUSE (sometimes called an escalator clause) this way:
| a provision in a contract calling for adjustments, usually increases, in charges, wages, or other payments, based on fluctuations in production costs, the cost of living, or other variables. |
For our intents and purposes it works slightly differently. Here’s how I might define it:
a provision in a purchase contract allowing for incremental increases in the offer price, up to a predetermined amount, based on and evidenced by competing offers.
Here’s how it might look:
A house is listed at $250,000. Mr. & Mrs. Buyer would really like to pay $245,000 for it but they are willing to pay up to $260,000 for it. They offer $245,000 and use an ESCALATION CLAUSE that says something like this, “In the event of a competing offer the buyers will pay $1000 over the highest offer’s net up to a purchase price of $260,000. In the event of an escalation, seller to provide proof of competing purchase contract with LSR (that’s our pre-approval form here in AZ) or Proof of Funds. Seller represents and warrants that competing offers are true and valid offers.”
Without an ESCALATION CLAUSE Mr. & Mrs. Buyer do one of two things: they automatically increase their price to the highest they are willing to pay for the property OR they offer less than they might actually pay and gamble on what the other buyers are offering.
With an ESCALATION CLAUSE Mr. & Mrs. Buyer are able to offer what they might really want to pay for the house. Then they use the ESCALATION CLAUSE to offer $1,000 (or $2,000 or whatever) over the highest competing offer up to their maximum.
There are a couple of things to keep in mind when using ESCALATION CLAUSES:
- Is there any way to really tell if the listing agent or seller is being truthful? No, probably not. There are liars and scumbags that exist everywhere. Plain and simple, we do the best with what we can so make sure you are comfortable with the top price that you offer. You may be escalated.
- In my experience banks won’t deal with them.
- Unless you remove it the appraisal contingency still exists so the property must appraise for the final price.
There you have it! ESCALATION CLAUSES…the little gem that helped my buyers get the house they wanted and saved them $4,000 in the process. I’d love to hear your thoughts and experiences regarding them.
Photo Credit: Stig Nygaard, Creative Commons
Just about everybody has insurance of one form or another, and most everyone understands why insurance is important. Automobile insurance, for example, protects the vehicle, occupants, and covers any liability if the insured is involved in an accident. Medical insurance protects someone if they get sick or hurt. Homeowners insurance protects against losses regarding our homes. The basic idea of these types of insurance is easy to understand.
But what about title insurance? Most people are hard pressed to give a definition of title insurance. Here’s the official definition –
“Title insurance gives you the assurance that possible clouds on title to the property you are purchasing – which can be discovered from the public records – have been called to your attention so that such defects can be corrected before you buy. Additionally, it is insurance that if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.”
Let’s look at the two main components – the title search for defects or clouds before you buy and claims that arise in the future.
1. The title search is done when an escrow is opened. A Commitment for Title Insurance is prepared, and it details any problems or items that must be addressed before a title insurance policy will be issued. Some examples of these items are:
- Release of current deed(s) of trust against property
- Payment of property taxes
- Payment of any HOA dues or assessments
- Release of any judgments
- Release of any federal or state tax liens
The Escrow Officer addresses each item to make sure it is taken care of prior to close of escrow. This allows the buyer to know that they are receiving title, or the deed to that property, free from any clouds or defects.
2. Claims that arise in the future occur when an item that could not be discovered by the search of the public records is discovered. Examples of these items are:
- False impersonation of the true owner of the property
- Forged deed, releases or wills
- Instruments executed under invalid or expired power of attorney;
- Undisclosed or missing heirs
- Mistakes in recording legal documents
- Misinterpretations of wills
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Fraud
- Liens for unpaid estate, inheritance, income or gift taxes
Should any of these items occur prior to the purchase of the home, but become discovered after close of escrow, they are covered under the terms of the title insurance policy.
Title insurance covers the property as long as the owner or the owner’s heirs retain ownership of the property. Unlike nearly every other type of insurance, there is no annual premium for title insurance. It is a one-time policy premium covering the property until it is sold. If any of the above issues occur, simply contact your title company and file a claim.The title insurer is responsible for defending your title, in court if necessary, at no cost to you, and bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.
Hopefully this sheds a little light on an often misunderstood piece of the home buying transaction. If you have further questions, feel free to send them to Bill Risser at risserb@ctt.com.
I was out in Queen Creek showing bank owned houses to a first time buyer this weekend. One of the houses we looked at had some squatters that didn’t make it through the summer heat apparently. These little guys (and I use that slight term of endearment very loosely) were found in the Master Bath.
I’m thinking this might be the reason the house hasn’t sold yet???
Note to agents: make sure to scan the WHOLE house when checking on your listings!
