How to Suddenly Go From Two (or More) Buyers to None

[Note to Readers: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]

Thanks to practically zero inventory — and almost zero percent interest rates — multiple offers are a fixture of the Twin Cities housing market right now, at least for homes priced < $450k or so.

Which means that Buyers’ agents need to be “on their game” (and then some) if their clients are to have a shot at prevailing.

Meanwhile, listing agents (representing Sellers) are almost certain to encounter what is known as an “asterisk clause” ” and must be adept at fielding same (note: in other parts of the country, the preferred term is “escalation clause”).

“Match and Raise”

So . . . exactly what is it??

Instead of filling in a purchase price on their offer, the Buyer employing an asterisk clause inserts this phrase (or the equivalent):  “Buyer will pay $5,000 (or $10,000, or $200) over next highest offer.’

Sounds like a Seller’s dream come true, right?

Not necessarily.

Savvy agents (including yours truly) know that it can backfire on the Seller, just as quickly leaving them with no offers.

Two Scenarios

That’s what can happen when one of the bidders greatly overshoots the other(s), and the Seller informs the “asterisk” Buyer that they just agreed to pay $5,000 more than that.**

Rather than wildly overpay, such Buyers will typically find a way to walk ” or renegotiate a much lower price after everyone else has.

Scenario #2:  everyone comes in with an “asterisk” offer.

Which leaves the Seller . . . nowhere.

Because of these (and other) perils, at least in Minnesota, most experienced listing agents handling multiple offers recommend that their clients set ground rules that preclude asterisk offers.

See also, “After You . . . No, After You . . . No, After You.”

**Eager Buyers can always limit their exposure by specifying a maximum amount they’ll pay (“$5k over highest offer, up to $375k”).

The catch?

That’s the amount they can expect to pay . . .

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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