Kim Mullan Blog
Balanced Protections. Form 244 & the Escalation Clause
May 8th 2019
Two tools are becoming increasingly familiar in the real estate landscape in London - the Form 244 & the Escalation Clause.
A Form 244 is more commonly known as a Seller’s Direction and is often used to "hold off offers". A Seller can us use this document to give written legal direction to their real estate representative about when & how they will receive/review offers on their property. One of the conditions of true market value is reasonable exposure to the market. Holding off offers may help to protect a Seller from underpricing their property and taking an offer before a other buyers have had a chance to view their home. There are several risks and many variations to the use of this form but the gist of it is to protect sellers from under-selling their homes while increasing the potential of a multiple offer scenario.
- the offer price
- the criteria that will trigger the escalation clause
- the escalation factor
- the cap
- the terms that create a fully accepted offer
- the delivery of documents confirming the final purchase price met the criteria required to trigger the escalation clause
- offering $110
- if a higher priced bona fide offer is received by the seller
- the buyer agrees to raise their offer (escalate) by a factor of $4 above the highest offer
- to a maximum of $120 (super important to have a cap to your price)
- and that if all criteria are met the new escalated price will be deemed accepted by the buyer (this is acceptable because both the buyer and seller are agreeing to this framework in the offer)
- the offer may require the Seller to delivery the second place offer, or a portion of it, to the Buyer's lawyer after the fact so that their lawyer can confirm the new price met the criteria outlined in the offer. This step is done directly through the lawyers because members of organized real estate are not permitted to convey the terms of offers due to the confidentiality rules of our industry unless there is written consent. The Sellers have no such obligation as they haven’t signed any non-disclosure agreements with parties submitting offers on their property.
- They will get more money by adding the escalation factor to their top offer if the escalation cap hasn’t been surpassed.
- Buyers are often anxious about bidding wars/multiple offers. Knowing that other offers will be within a certain proximity to their own increases consumer confidence which leads to higher maximum price. In the previous example a buyer might bring a standard offer of $115 but with the escalation factor might increase their final price to $130 knowing there there are other buyers who see similar valuations for the property.
- Being able to provide a pattern of value to an appraiser may help with financing. This is important for Sellers because Buyers may not be able to get a full financing if the purchase price doesn't appraise. If a property under-appraises the Buyer must have access to the cash differential between the appraised value & the purchase price. If that cash doesn't exist there may be no financing on closing day.
If you are looking for representation as a Buyer or Seller make sure your Real Estate Agent is comfortable navigating all of the tools available to you.