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Inside Tucson Real Estate's Blog

By Rob & Catherine | Broker in Tucson, AZ

How to "Win" a Foreclosure Listing

Lenders or Asset Management firms that list foreclosed homes have started pricing their homes far below market. Their strategy is to shorten the listing period by pricing the home so low that it will attract immediate attention. And it works!

Do homes sell for these listed prices? Sometimes, but often the low price is a starting point as these extemely low prices tend to attract multiple offers. Buyers are often very disappointed when they submit an offer just below or even at the listing price as they have been outbid. Most of the time the Buyer would have paid more for the property but they are not given a second chance. I call this a Foreclosure "Bait&Switch" strategy.

So how do you "Win" these deals? By using an Escalation Clause.  Some Realtors are familiar with this tactic as it was used quite often when it was a "Seller's Market" in 2005.  How does it work? It is easier to go through an example than try to explain it. 

Let's say a home is listed for $200,000 but recent sales show similar homes selling for $250,000.  A price difference this large often indicates the Seller is using the "Bait & Switch" strategy.  

If you place an offer for less than List Price or even at List Price you may be overbid and lose the property.  This can be devastating, as Buyers start to become emotionally attached to the home as, after all, they submitted a "good" offer.  They may have even submitted a List Price offer and everybody "knows" that home prices are negotiated to a below list sales price.  Right? 

Many Buyers have friends that purchased a home and negotiated a price that sold for 5%, 10% or even 15% below the list price. These stories may give you "bragging rights", but you may be able to get an even better deal, even though it may be over List Price. Many Realtors/Buyers learn that lesson the hard way.

So what do you do? Let's say the house is worth $215,000 to you and you would purchase it for that amount if you could not negotiate anything less. But if you submit an offer for $215,000, you may be paying more than you would have to for the property.

This is where the Escalation Clause can help you win the property at the lowest possible price. Here is how it works:

You still place an offer at $200,000 or even at $190,000 but you include the escalation clause that says, "If another Buyer places an offer larger than my offer, then increase my offer so it is $500 (or $1,000) higher than the highest bid. My maximum bid, however, is $215,000."  

If there are no other offers, you "win" the property at your low bid price, but if there are competing bids, you still "win" so long as no Buyers offer more than your maximum.

There is also one more important element that must be included in the Escalator Clause.  The Seller must provide you copies of any competing offers that triggered the Escalator Clause and caused your offer price to go up. This is to protect the Buyer against the Seller using a verbal offer to increase your final sales price. 

If you have a Realtor and you find a home that is priced "too good to be true", it would be a good idea to at least bring this strategy to their attention.  If you do not have a Realtor and live in the Tucson/Vail AZ area, we would be happy to help you.  Our "Bait & Switch" strategy is one of many tools & tricks of the trade we have learned over the years to help our clients succeed.

Warmest Regards and Best Wishes in the sale or purchase of your home.

Rob & Catherine Hallberg,
Associate Broker, CRS, GRI, ABR & ASR

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