You and your buyers may think adding an escalation clause to Special Provisions is a great way to ensure your buyer’s offer is accepted. Such a clause changes the buyer’s offered purchase price based on outside variables. For example, an escalation clause could say a buyer will pay $1,000 more than any other offer.
However, TREC rules prohibit license holders from writing escalation clauses. TREC Rule 537.11(b)(5) says license holders may not “draft language defining or affecting the rights, obligations, or remedies of the principals of a real estate transaction, including escalation, appraisal, or other contingency clauses.”
That means you cannot put language in a contract that changes what the contract allows or requires a party to do. According to TREC, a license holder drafting language of this type is considered the unauthorized practice of law.
If your buyer requests an escalation clause in his offer, suggest that he speak with an attorney. If your sellers receive an offer with an escalation clause, they can seek legal advice or ask the buyer to resubmit the offer without that provision using the Seller’s Invitation to Buyer to Submit New Offer (TXR 1926). Advising your clients how escalation clauses will affect their contract is considered giving legal advice, which license holders may not do.
The example clause given here appears to make sense if a Buyer really wants to “win” the deal. But give all the possibilities a little thought and this clause becomes really spooky! Thanks TAR for the insight!
Does this mean an escalation generated by an attorney is considered “legal” and could be an “addendum” to an offer?
Seller can only make changes to a contract with the Real Estate Attorney.
For Sale By Owners can make changes to a contract, but take a risk of being sued, unless they use a Real Estate Attorney.
FSBO’s are normally Investors, who will aways try to get the most for their properties to increase profits.
FSBO’S may avoid using a Realtor, to avoid paying commissions, or may ask for reduction to 1 % / less.
A seller can make whatever changes they wish to a contract… without an attorney.
Anyone can get sued, even if they use an attorney.
I haven’t experienced the two latter statements.
This correct it appears one or more of posters here are confusion the wide range options seller can make on a real estate contract without a real estate attorney….classic misinformation by some posters here.
Hey Daniel Ramirez please delete this comment. Literally ever statement is not true. 1. Parties to the contract can make changes how they see fit. With or without an attorney. 2. Again- all parties to the contract can make changes to the contract. Additionally – anyone can get sued – whether or not they are using a promulgated form or not. 3. FSBOs are not usually investors. There is zero evidence of that. Additionally- technically everyone homeowner is an investor. And every seller would prefer to get the most for the property and increase profits… not just “investors.” Did you… Read more »
Yes! And thank you, Todd.
Absolutely correct, Todd. Misinformation about this, accepted as valid by many without checking has become commonplace. I call it Ruling by Rumor. Once these myths have been heard enough times, everyone accepts them as true, and ethics cases are lost when the actual rules and laws are not considered, and careers and livelihoods are lost, for no reason except common misconception.
Here again Johnson and Bingham are correct about the incorrect and misinformation by some posters here regarding the rights of sellers to make changes on real estate contracts without a real estate attorney.
SINGULAR APPLICATION LEAVING OUT MANY OTHER EXAMPLES.
ASSUMPTIVE AND FALSE
SO, escalation clauses are not illegal, it is just that a Realtor cannot create an escalation clause, correct? So, can I have my attorney write an escalation clause that I could use for multiple properties as I attempt to purchase a new home for my family?
May my client write their own escalation clause in the contract, along with a separate document that acknowledges my advice to speak with an attorney about this? I.e. The REALTOR wouldn’t draft legal language, the client would.
I would like to know the answer to this as well as it pertains to the state of Texas
Bingham et al are saying that TXR is incorrect?