The Real Deal Los Angeles

In cooling markets, bump clauses are becoming a popular tool for agents

The clause gives buyers more time to close deals and sellers the chance to find better offers
July 05, 2018 03:00PM

An Upper West Side residential block (Credit: Wikipedia)

As some markets in New York and elsewhere around the country cool off, a new contract clause that allows a home seller to continue fishing for offers while in contract is gaining in popularity.

The bump clause allows those sellers to “bump” an existing offer in favor of a better one should it come up, giving sellers more peace of mind, according to the Wall Street Journal. It can also be advantageous for buyers.

The clause usually come into play when a buyer has some kind of contingency built into the contract, most commonly a home-sale contingency, which means they won’t buy until they sell their existing home. The bump clause can give them more time to sell their existing home, because a seller needs to come back with another offer to nix the existing one.

Second, it can convince a seller with unrealistic expectations of a follow-up offer to enter into a contract they wouldn’t otherwise accept. A seller in Brownstone Brooklyn might think they’ll get a big second offer or one that doesn’t involve a contingency because the market has been consistently hot for years. But they might not accept that the market is showing signs of cooling, including a double-digit percentage drop in sale price year-over-year in the first quarter.

Chances are the seller won’t get a better offer, so buyers can typically secure a deal that otherwise wouldn’t happen.

“Knowing the bump clause is a possibility is comforting to a seller, but most of my clients remain firmly committed to the contract in hand,” said Robin Sheridan, an agent with Realogics Sotheby’s International Realty in Seattle.

It can also put buyers with home-sale clauses into a tough situation. If a seller comes to them with a better offer, they may only have a few days to back out and get their money back or waive the clause. Failing to sell their existing home leaves them unable to buy and that could mean losing money they put down on the contract.

It’s not all roses for sellers either. They might be tempted to take a higher second offer and pass on the one in contract, but that offer could come with a buyer with poor credit, for example. [WSJ] – Dennis Lynch