“Turtles All the Way Down” (Also Known as “Infinite Regress”)

As a faithful agent, I’ll always do what my principal — the client — instructs me to do.

But, that doesn’t mean I necessarily endorse their chosen strategy.

turtlesTwo cases in point:  1) so-called “asterisk clause” offers, in which a Buyer in multiple offers promises to top the highest bid by a prescribed amount; and 2) Contingent offers, wherein the Buyer has to first sell their current home — what Realtors refer to as “the backup house” — to consummate the purchase of the next one.

The hitch with each situation is that no one is absolutely committing to a deal, with the consequent effect (often times) that such deals have a high failure rate.

“You Go First!  No, You Go First!”

The risk with an asterisk clause offer — or at least one of them — is that everyone comes in with such an offer.

So, one Buyer offers $10k over the highest offer; another offers $15k; and another $20k — but no one fills in an offer amount!

Exactly where does that leave the Seller?

Answer:  in the position of telling all bidders to come back to the table with a firm number.

Of course, there are many other reasons not to like asterisk clauses, including the fact that they implicate the listing agent in revealing one Buyer’s offer to another (contrary to the usual rules — and the opposite of a “level playing field” approach to conducting multiple offers); and that the winning bidder has a funny way of backing off the price they committed to, once the other bidders have disappeared and the competition for the home has cooled off.

See also, “Multiple Offers & Asterisk Clauses“; and “Asterisk Clauses Make a Comeback.”

Housing Dominoes

By contrast, Contingent offers present a more classic example of “infinite regress.”

dominoes1So, assume that a Contingent Offeror finds a willing Seller, and inks a deal with them.

What happens next?

The Contingent Buyer shifts their focus to selling their current home.

Usual Outcome:  Expired or Bumped

But, what happens if they sell to a Contingent Buyer, who in turn sells to a Contingent Buyer, and so on and so on? (the longest chain of such deals I’ve read about is nine).  See also, “Daisy Chains, Dominoes, & Contingent Offers.”

Suffice to say, the more links in the chain, the more tenuous the deals — all of them (I seem to recall something about chains and weak links).

Perhaps that’s why, at least in my experience, the more usual outcome with Contingent deals is that either the backup home (or homes!) fail to sell in time, causing the deal to expire (and the chain to unravel); or, another, stronger Buyer shows up, and bounces the Contingent Buyer and their earlier, signed Purchase Agreement.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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