Bidding wars are heating up, often with escalator clauses, for sought-after listings in Northern Virginia

January 20, 2013 — I’m seeing them more frequently with each passing month. Not only are more attractive and accurately-priced listings for single family homes, townhomes and condominiums drawing several offers, we’re finding more buyers willing to include escalator clauses.

Multiple offers - images

Multiple offers on the sale of your home may bring a few unanticipated challenges. CREDIT: Activerain

Escalator clauses were a common feature of bidding contests in from 2003 through 2006 throughout the Metro Washington, DC area. With notable exceptions, one had to include them in their submissions on top of matching the asking price.We may not be quite there yet throughout the entire DC region. But we may be there soon with homes for sale that have good locations, have been kept relatively up-to-date and are priced realistically to begin with.These factors in the Northern Virginia, DC and close-in Maryland suburbs figure to play even stronger roles in 2013 and beyond:1) pent up demand

2) low interest rates

3) a steadily improving economy, and

4) the stable federal and contracting workforces.

Average home prices in Northern Virgina home rose 13% year-over-year in 2012, that’s the most drastic increase in more than six years.

If you find yourself competing with other others, first understand how escalator clauses work. Don’t go it alone. Working with a Realtor  you trust can keep you from overpaying or making some other mistake you’re bound to soon regret.

It is quite possible that deploying an escalator clause might needlessly inflate the selling price. That’s great if you’re the seller, not so if you’re the buyer.

A contract might say something as simple this:

“In the event of multiple contract presentations for the property located at 12 Main Street, I hereby increase my purchase offer by $5,000 above any alternative offer, providing that my maximum purchase price shall not exceed $650,000.”

If an owner receives several full-price offers, the details of their escalator clauses (e.g. any maximum offering price) should push one on top of the others. Before you choose any such option, however, it helps for sellers to look at which offer represents the best chance to close, especially if the owner is in a hurry to sell.

At one extreme, the best offer might be an offer with no contingencies, such as need for mortgage financing, the sale of an existing home, and an inspection of the property for sale. (Remember, home inspections still make sense so you at least know what your getting yourself into.)

At the other extreme, the escalator clause might come with a a few strings attached, attached, e.g. a faster than normal closing to register children for the next school year.

Here are a few examples of what can happen with escalation clauses from the Northern Virginia Association of Realtors, of which I’m a member.

Please call me at 703-593-9432 if you have any questions. And be sure to mention you read this on my blog.

Have mortgage rates hit bottom?

For anyone searching for a home mortgage over the past year or so, the historically very low rates have been a dream come true.

Recent events in the money markets have pushed 30-year financing above 4%, so a lot my clients and friends are asking how long this really inexpensive money will last. Well during the last two weeks of March, the average 30-year rate has slipped back so the outlook for now, based on numerous assessments, is not yet.

30-year mortgage rates 2007 to March 2012. CREDIT: CSMonitor.com

That said, if you’re in the market for mortgage financing, anything close to 4-5% is a relative bargain if you look at rates dating back to 2007 (see accompanying chart).

Since January, the Federal Reserve has been saying it will keep its easy-money policies in place until late 2014, according to The Wall Street Journal. The goal is to keep interest rates for households and corporations very low to spur the borrowing and investment needed to put America’s recovery on a sounder footing.

Recently, though, investors have ramped up bets that a rise in the Federal Reserve’s key short-term interest rate, the federal funds rate, could come sooner. That has pushed up market interest rates.

The upshot: don’t procrastinate over a few hundred “basis points,” as the mortgage pros call them. Some people refer to that as “bottom-fishing.” In the end, it doesn’t pay if you’re putting your next dream home at risk.

I’ve been working with very reliable and trustworthy mortgage brokers throughout my career and can connect you with very competitive, if not THE lowest cost, offers in the Metropolitan Washington, DC area.