I almost used an escalation clause.
Perhaps my most compeling opening blog line ever.
In a multiple offer situation on Kootenay Lake waterfront recently my buyer proposed we use an escalation clause, or a “referential purchase price clause” (RPPC).
An RPPC pledges the Buyer will beat any bona fide offer it competes against by a set amount, and usually (unless you won the client lottery) up to a certain amount.
In Practice
So, the language looks like:
“The purchase price is $1,000 above the price offered in the nearest competing bona fide offer acceptable to the Seller to a maximum price of $500,000.”
This is sometimes accompanied by “The Seller agrees to provide a copy of such nearest competitive offer on acceptance of this offer.”
In Malpractice?
In Canada these clauses are tricky because they’re not strictly legal, or rather not strictly enforceable in the event that one party or other chooses not to fulfil the contract terms.
“In fact, The B.C. Court of Appeal, in the case of The Bank of Nova Scotia and Yoshikuni Lumber, held that an offer by one bidder which is dependent for its definition on the offers of others is invalid and unacceptable, as being inconsistent with and potentially destructive of the very tendering process in which it is submitted “(from BCREA Realtor guidance here).
(Much has been written about this in BC but see this article from 2003 for clarity.)
On the other hand, they kinda work.
They can clearly communicate something to a Seller that a double-blind bidding process can’t. Ms. Buyer clearly communicates to Mr. Seller the full latitude of her desire and ability to buy the house.
However, because we as Realtors know they’re unenforceable it’s been argued that employing them is a kind of malpractice.
Another weird thing is that when we use one as a Buyer’s Agent we’re in the position where we’re hoping that the Listing Realtor also follows BCREA guidance and corrects our strictly intentional squishiness by doing ALL of the following (again from BCREA guidance).
- the listing agent should review the referential offer with the seller very carefully as it might not be the best offer with respect to other terms besides price, such as the financial qualifications of the buyer, dates and any subject to clauses;
- if this offer appears to be the best offer, the listing agent should advise the seller to counter the said offer by deleting the RPPC clause and inserting a fixed price for an identical amount in its stead;
- this counter-offer should be open to the buyer who presented the referential offer for acceptance before the expiration of any other offer the seller may be considering;
- if the buyer in question accepts the seller’s counter-offer, then it is no longer a referential offer as it is a contract for a fixed price;
- if the buyer refuses to accept the seller’s counter-offer by the time it is open for acceptance, then the seller is free to counter or accept another offer as long as it has not expired…
In this situation my Buyer chose not to use the clause, which would’nt have helped because their max price, as it turned out, was below the winning bid, but it made me dive deep into an area of real estate practice once relegated to the busy Lower Mainland that is, for now at least, showing up in our market in the West Kootenays.
All that said, I’ve never actually, personally used an RPPC. Have you used one in BC? Did it work? Did it not?
Thrums, BC. 27 April 2021