Bump clause

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‘Bump Clauses’ Are Giving Sellers a Safety Net

July 6, 2018

More real estate transactions are reportedly tying in a “bump clause” to give sellers some assurance that they are receiving the best offer. A bump clause allows sellers to enter into a contract with a buyer but continue to market the property. If the seller then receives a better offer, they can bump the original buyer to get them to waive their contingency or offer more.

The bump clauses are usually used when a contingency is involved in the original offers. Buyers may offer it to sellers to get them to accept their offer, which may have a contingency like selling a house first before proceeding with the purchase of the new one.

If sellers do get another offer they wish to take, they have to notify the original buyer first. The buyer then has a few days to tell the seller they’ve decided to waive their contingency, or the original contract is terminated. If the contract is terminated, the original buyer gets their earnest money returned and sellers are then able to enter into a contract with the new buyer.

Sellers are able to continue marketing the property only until the buyers satisfy or waive the contingency. Once they do that, the seller must stop marketing the property to other buyers.

Real estate pros say the clause is mostly used in housing markets that once saw rapid home sales, but where sellers haven’t adjusted their expectations yet.

The tactic can be “a savvy technique” to help the sellers feel they could still get a better offer, David Reiss, a Brooklyn Law School professor who specializes in real estate, told The Wall Street Journal.

Some sellers are using the bump clause as a negotiating tactic with any other buyer who may show interest. The seller can use it to get other buyers to try to outbid the current price or negotiate a contract without contingencies, The Wall Street Journal reports.

Source: 
In Cooling Housing Markets, ‘Bump Clauses’ Help Seal Win-Win Deals,” The Wall Street Journal (July 5, 2018) [Log-in required.]