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posted: 5/23/2014 12:01 AM

More homebuyers using real estate 'escalators'

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Q. Home sales in our area are very strong, and many buyers are getting in bidding wars for the property they want to purchase. We already have lost out on two homes that we wanted because someone offered more money. Our agent is suggesting that the next written offer we make on a home includes an "escalation clause" that would automatically raise our offering price by $1,000 over any competing bid. Would this be a good idea?

A. It could be a wise move, provided that the clause includes some important safeguards.

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Escalation clauses, sometimes simply called "escalators," are making a comeback in many markets where for-sale homes are drawing multiple offers. If you include such a clause in your next purchase offer, your offering price automatically will be raised by a specified amount -- often $1,000 or more -- above the highest competing bid.

Though an escalator can increase the chance that your offer will be selected over others, you have to make sure that it has some key protections. For starters, it should include a limit, or "cap," on how many times your offering price can be raised automatically. Without it, you could see unlimited increases -- perhaps to the point where the price is more than you would otherwise pay.

The clause also should specify that the escalator can only be triggered if the seller provides you with a bona fide copy of the competing buyer's offer. That discourages most sellers from simply claiming that a better offer has arrived, though some agents admit that a few deceitful owners have simply drawn up a bogus contract from a fictitious buyer to pad their resale price.

Finally, the escalator should include an appraisal contingency that states that the deal can be canceled without penalty if the final sales price is higher than the value estimated by a professional appraiser. If you don't have such a contingency, you'll be agreeing to purchase the home regardless of what the appraisal says it's worth.

Q. We made an offer to buy a home. The seller countered with an offer that was $12,000 more, but we declined because we didn't think the house was worth it. Two weeks have passed, and now the seller has called us to say that he will accept the price that we originally offered. Are we legally obligated to buy the house, even though we no longer want it?

A. No. When the seller made a counteroffer, he automatically rejected your original offer and made it null and void. He has no legal recourse to make you purchase it now.

Q. I was interested in your recent column about the city of Detroit's new program to auction off vacant homes at bids that started at just $1,000. How did it go?

A. Very well, according to city officials. In fact, public response has been so strong that they added more properties to the auction block and are extending the time frame of the daily sales, with the hope of moving 400 of the homes by the end of the year.

All of the properties had been seized by Detroit officials because their owners hadn't paid their property taxes and other fees. One condition of the sale is that the winning bidder must make certain city-mandated improvements: Some properties need relatively minor repairs, but others require expensive overhauls.

The first home, which was sold May 5, drew 88 bids and eventually sold for $34,100. It's a handsome three-bedroom, two-story, 1,400-square-foot brick house that authorities say is structurally sound but needs a new furnace and water heater.

More-recent sales included a stately Tudor-style home with 1,400 square feet that fetched $39,400 and a 1,200-square-foot, cottage-style home with a finished basement that sold for $42,100. Most of the homes so far have been in the city's up-and-coming East English Village area, where online real estate services-provider Trulia.com says the average asking price for properties that are being sold through the traditional method is $50,978.

The program was recently expanded to areas that include Boston-Edison, once considered the Beverly Hills of the Motor City. You can find out more about the program, view pictures of the properties and get their details at www.BuildingDetroit.org.

Real estate trivia: More than 1,700 buyers and refinancers across the U.S. polled by HomeAdvisor.com found that they paid an average of $324 for an appraisal, with the vast majority paying between $306 and $342.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2014, Cowles Syndicate Inc.

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