Even if you are not familiar with real estate contracts, you might have heard of a bump clause. Real estate professionals often write bump clauses into contracts to allow a buyer to continue marketing a property even after receiving a bid. Sellers who receive better deals can then bump their original buyers. Ultimately, a bump clause has pros and cons for both parties.
Real estate agents should always carefully consider the impact of a bump clause on the best interests of their clients. Real estate continuing education helps real estate agents determine the best way to approach bump clauses for buyers and sellers.
How a Bump Clause Works
Suppose the seller receives an offer from a buyer who has a contingency. Perhaps the seller is still trying to sell his or her former home, for instance. The bump clause allows the seller to accept another offer, so long as the seller notifies the original buyers and sees if they will waive their contingency. If not, the buyer accepts the new offer and the first buyer receives the payment they put down.
Bump Clause Advantages for Sellers
The biggest advantage of a bump clause to a seller is that he or she can continue listing the home on the market for several months awaiting the contingency period to end. This is good because re-listing a home later can stigmatize the property.
Additionally, the seller can use the pending deal as leverage with buyers who could be swayed to outbid the current price. The buyer could end up offering a better bid.
When sales are not as hot as they once were, bump clauses tend to emerge. Sellers can hold out for a better offer while holding one potential buyer in their pocket. For a seller, the clause may feel like a security blanket.
Bump Clause Advantages for Buyers
The buyer often presents a bump clause to the seller in the hopes it will influence the seller to accept an offer with a contingency. Otherwise, trying to buy a home while selling your home at the same time can be a hardship. While the concept of a bump clause does not initially seem advantageous to the buyer, it can present opportunities not otherwise available.
The Best Time to Use a Bump Clause
Bump clauses do not always work, and they especially do not work when the market is hot. In a seller’s market, offers are coming in without contingencies. Consider your location and the state of the market in your area before considering a bump clause.
For sellers, the best time to take advantage of a bump clause is when the offer is strong enough to warrant it. If the second buyer has bad credit, he or she may be unable to secure funding for the home.
Whether you are a new real estate agent or simply want to brush up on your knowledge about contractual clauses, consider taking real estate continuing education. Choose your state now and start your training today!