Petersheim: ‘Escalation clause’ back in super-tight realty market

With the residential housing market so short on supply in Maricopa, there’s been a resurgence of a purchase offer clause that I haven’t seen widely used since the early 2000s.

The escalation clause has always been available, but until recently it wasn’t common to see on a weekly basis. For the uninitiated, it is a tool initiated by a buyer making an offer to purchase a home.

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Here is how it works:

The clause specifies the initial offer price, gives an incremental amount – the escalation – that the offer is to increase and states the maximum limit that the offer can be raised.

For example:

A buyer offers $235,000. As part of the purchase offer, the buyer also agrees to increase the offer $1,000 over the highest offer received by seller – with proof of that other offer –  up to the amount of $250,000.

The escalation clause has advantages and disadvantages.

The pros:

• Peace of mind for some buyers
• Shows you really want the property
• Buyer doesn’t overpay

The cons:

• You give away your negotiation power
• Bank appraisal issues
• It only considers sales price
• It tips your hand to sellers

One way for the buyer to avoid the stress of an escalation clause is to make the highest/best offer initially.

The clause is making a resurgence in the market as the supply of Maricopa homes for sale continues to tighten. From one year ago today, the number of listings is down 67%.

SLIM PICKINGS

Last year, there was an average of 300 homes for sale in the city of Maricopa on any given day. Only 77 homes are currently for sale in Maricopa, as of today.

Of those:

22 are in Province (active adult community)
32 are new build/spec homes (some of these may actually still be dirt lots)

That leaves just 23 listings for existing resale homes!

When using numbers of bedrooms as the parameter, of the 77 available homes, the numbers break down like this:

2 beds – 20
3 beds – 29
4 beds – 22
5 beds – 5
6 beds – 1
7+ beds – 0

Searching by garage capacity?

2 cars – 62
3 cars – 12
4 cars – 3

Searching by listing price?

$150,001-$175,000 – 0
$175,001-$200,000 – 0
$200,001-$225,000 – 2
$225,001-$250,000 – 15
$251,001-275,000 – 18
$275,001-300,000 – 11
$300,001-350,000 – 19
$350,001-400,000 – 8
$400,001-450,000 – 2
$450,001+ – 2

Homes with a pool?

Pool: 7
No Pool: 70

So what does this all mean?

For buyers: If timing permits, consider a new build, keep options open and there will be more homes to choose from. Before submitting an offer with an escalation clause, make sure that you are aware of what can happen. Make sure your agent explains the pros and cons and answers any questions.

For sellers: A fairly-priced home listing will get quick attention in this market. Your first week after being listed may be busy and chaotic. Make your home available for showings, you may get more than one offer.

Any questions about value or the market, please reach out to me.

Brian Petersheim
HomeSmart Realty
602-206-9644
MaricopaNewHomes.Net
CanadiansInArizona.net