Q&As for July 2021 Escalation Addendum to Contract Update
A new form, Escalation Addendum to Contract, was released on July 22, 2021, on Form Simplicity. This form can be used with any of the Florida Realtors® contracts, as reflected in the new form.
Below, you'll find answers to commonly asked questions on the document.
Q: When is this form required to be used?
A: There is no requirement for this particular form to be used. This form is offered as a means for the buyer to increase the competitiveness of buyer’s offer.
Q: Why does it matter which contract form is being used with this addendum?
A: The language in forms matters. As such, the language in this addendum is specific to the Florida Realtors Contracts for purposes of clarity.
Q: What do “bona fide” and “unexpired” mean in terms of the Competing Offer?
A: “Bona fide” means sincere, genuine and without any intention to deceive. So, in the context of this form, a bona fide competing offer means a legitimate offer from a competing buyer that has not been created or formulated by the seller or anyone else solely in the hopes of obtaining buyer’s Maximum Purchase Price. “Unexpired” refers to the time for acceptance that is in each Florida Realtors Contract. This is the date by which a seller must respond to a buyer’s initial offer before it is withdrawn. So, in the context of this form, the Competing Offer submitted to buyer by seller must still be capable of being accepted by seller, i.e. not beyond the time for acceptance.
Q: What does a buyer put for an escalation amount?
A: Use of this form requires thoughtful consideration on the part of a buyer as to what buyer can afford, whether the resulting purchase price would adequately reflect the value of the property and whether buyer is able to pay cash or is attempting to finance the amount. Ultimately, it is up to a buyer as to what to put as an escalation amount.
Q: Why does a buyer need to indicate a Maximum Purchase Price?
A: Calls to Florida Realtors Legal Hotline indicate issues with language being used in escalation clauses omitting a cap on what a buyer is willing to pay. Not having a cap could result in a buyer inadvertently agreeing to a much higher price than buyer is willing to pay or able to afford.
Q: What does it mean when it says if the increased Purchase Price exceeds the Maximum Purchase Price, the Buyer’s offer is the Maximum Purchase Price?
A: This means that whatever amount is put as the Escalation Amount may not be the actual increase to the Purchase Price if it exceeds the Maximum Purchase Price. As the determination of the revised Purchase Price involves the Competing Offer, it is possible for a buyer to offer a $5,000 Escalation Amount but it important to note the revised Purchase Price isn’t simply adding that amount to buyer’s initial offer.
For example, buyer offers $100,000 in an initial offer, with a $5,000 Escalation Amount. Buyer’s Maximum Purchase Price is $110,000. If the Competing Offer, plus the Escalation Amount of $5,000 puts the revised Purchase Price over $110,000, the Escalation Amount may be less than $5,000.
Q: Why does a buyer need to indicate how buyer is paying for any Escalation Amount?
A: While the purchase price is an important component of the contract to be sure, it isn’t the only important term for parties to be considering. Whether or not a buyer will be able to finance an Escalation Amount is very subjective to the lender and that particular buyer’s finances. As such, a seller may wish to consider what ends up being a lower revised Purchase Price if one buyer is offering to cover the Escalation Amount in cash versus being subjected to lender approval.
Q: Why does a buyer have to submit proof of funds if paying cash for any Escalation Amount?
A: Calls to Florida Realtors Legal Hotline have indicated that in today’s market climate, buyers are offering to pay cash when they do not have the amount in hand to cover any Escalation Amount. As such, most sellers are now asking for proof of funds to know a buyer is able to contribute cash towards any amount paid in an escalation scenario.
Q: Why does a seller have to submit a copy of the competing offer to a buyer?
A: Since the revised Purchase Price stems from adding buyer’s Escalation Amount (up to the Maximum Purchase Price) to the Competing Offer and the form requires a bona fide offer, this simply requires a seller to show that offer so that all parties are working from the same Competing Offer price.
Additional questions? Contact the Florida Realtors Legal Hotline 407-438-1409.