Rough Draft Escalation Clause/Escalator Clause
LAWYER DRAFTED ESCALATOR/ESCALATION CLAUSES ARE NOT ILLEGAL IN SOUTH CAROLINA.
REAL ESTATE LICENSEES WITHOUT A LAW LICENSE SHOULD NEVER CREATE PHRASES OR SENTENCES OR SENTENCE FRAGMENTS IN LEGAL CONTRACTS WITHOUT LAWYER OVERSIGHT.
CALL THE HOTLINE 803-772-5206 if you need attorney language.
SCR STANDARD FORMS ARE DRAFTED UNDER LAWYER SUPERVISION ALONGSIDE THE SCR STANDARD FORMS COMMITTEE.
Hot real estate markets in SC and across the USA have increased reports to the hotline about REALTORS® taking risks with fair housing, lawsuits, license law, ethics, MLS violations for Clear Cooperation Policy (e.g. pocket listings, only advertising on closed private Facebook groups, inappropriate use of coming soon – hold don’t show, verbal listing agreements).
Multiple offers are a part of a hot real estate market.
In general, the typical seller’s best interests are served by full exposure to the marketplace by MLS and IDX data feeds from the MLS to dozens/thousands of websites.
Sellers who desire privacy for legitimate reasons may choose a written listing agreement office exclusive that shuns any public marketing by anyone in order to maintain this seller need for privacy [NAR lawyer and expert on MLS clear cooperation policy Charlie Lee stated to SCR lawyers that he regards posting to private Facebook groups as public marketing and so is incompatible with an office exclusive listing].
In multiple offers, listing brokers must present all offers (avoid fair housing problematic love letters, remove fair housing problematic love letters, consider using a spreadsheet of offers without potential fair housing issues with buyer names) and deliver SCR314 the LLR offer rejection form to the buyer side anytime the seller does not accept any offer or counteroffer from that buyer side.
When receiving 48 offers and sellers want to use highest and best terms offers, send 48 SCR314 offer rejection forms. SCR312 multiple offer form can be used alongside SCR314, but SCR312 cannot be used in place of SCR314. Then, once the seller accepts or counter offers one of the highest and best term offers, send 47 SCR314’s. That is a total of 95 SCR314’s sent by the listing agent to all the buyer side licensees.
Sellers decide how to handle multiple offers in their own best interests.
Perhaps, the seller accepts/counters one initial offer (bird in the hand).
Alternatively, the seller may call for "highest and best terms offers" (two in the bush) because in a hot market the chances that all the buyers go elsewhere is low, even if the seller asks for the highest and best terms offers.
Some buyers submit their highest and best terms offer.
Some buyers use a lawyer-drafted non-disclosure agreement to prevent their offer from being used against them in a competing offer’s escalator/escalation clause.
Some buyers use a lawyer drafted escalation/escalator clause in a strategy to buy below their highest and best terms (e.g. below the escalator’s cap price).
Not using a cap price can create other contract issues when more than one buyer uses an escalation/escalator clause without a cap, as these offers without caps push each other to an infinitely high dollar price.
SCR is working to consider developing a standard escalator/escalation clause. Please send feedback to SCR.
Currently, few state association report to SCR’s survey and NAR listserv surveys that they provide a standard form escalation/escalator clause due to potential issues (e.g., the material term "price" missing from offer prevents a contract, seller’s friend submits an offer solely to ratchet the escalation to the cap, several buyers use escalation clauses so they all circular firing squad ratchet their offers to their escalator cap, no caps mean infinitely high dollars in price, some escalators move price, some escalators take into account the seller’s net, some buyers use non-disclosure agreements to prevent being used to up an escalator/escalation clause in a competing offer).
Some sellers might always counteroffer at the escalator cap if that appears to be the highest price in a multiple offer situation.
There are a lot of other terms in the offer that are important to sellers beyond price (e.g., closing date, seller paid costs for buyers, cash buyer versus financing buyer, a buyer who does not need to sell their old home in order to buy this home, earnest money amount, due diligence termination fee amount).
Buyers should use the highest and best terms for these issues too.
Some sellers might consider these issues ahead of price, especially if the price is close to another offer.
SCR is hearing reports that some seller’s attorneys are drafting language to make the contract contingent upon the seller obtaining future housing.
In a hot market, going fully "all in" with the highest and best terms offer can be that buyer’s best chance to get their dream home and avoid lawyers/court/disputes.
Contract law requires an element of good faith, so if a buyer cannot afford to buy more than one property, there are risks to submitting several simultaneous offers on several different properties even using SCR310 due diligence. Perhaps, a lawyer drafted disclosure from the buyer to the seller about this issue could help prevent issues.
Remember that in multiple offers, only one buyer is happy. The other buyers are disappointed. Most buyers and sellers want there to be a somewhat level playing field so all offers can compete fairly and the best offer prevails. This also protects REALTORS® and sellers from risks that can arise from upset buyers who feel the competition was illegally/unethically stacked against them.
Posted by: Byron King on 3/2/21 (This information is only accurate as of 3/2/21. You must contact SCR for updates and changes to this information after 3/2/21 as laws and regulations may change over time. SCR 803-772-5206 or email info at screaltors.org)
Updated May 3, 2021.
Posted by: Byron King on 5/03/21 (This information is only accurate as of 5/03/21. You must contact SCR for updates and changes to this information after 5/03/21 as laws and regulations may change over time. SCR 803-772-5206 or email info at screaltors.org)