A bump clause can be a valuable tool in your real estate agent toolkit—if you know how to use it correctly. In essence, it allows a seller to enter into a contract with a buyer while still holding out for a better offer. This allows you to continue marketing the property while the deal goes through. More importantly, it gives the seller peace of mind.
When to Use It
Usually, a bump clause comes into play when a buyer’s offer is contingent on selling their current home first. Sellers naturally want to get the best offer possible—and that means not only the best price, but also the fastest close. If the seller is hesitant to sign a contract with a home-sale contingency, a bump clause may ease their fears.
Bump clauses are more common in transitional or cooling markets. If properties are moving quickly, there’s less need. When homes are sitting on the market for months, however, a bump clause can also make the seller more receptive to an offer they might otherwise reject, since they’ll feel like they’re keeping their options open.
How it Works
If the seller gets another offer, they have to contact the buyer and let them know. Then the buyer needs to respond within a set time period. If they’ve sold their home or want to drop their original contingency, the deal will still go through. If they fail to respond or can’t drop the contingency, then the contract terminates and the seller can move forward with the new offer.
It’s important to note that if offer was contingent on the buyer selling their own home first, then once that sale goes through the bump clause is no longer in play and you must stop marketing the property.
Advice for Buyers
If a second offer comes through, buyers may feel pressure to waive their home-sale contingency in order to secure their new home. However, that can backfire and lead to the burden of two mortgages, or to losing the money they put down on the original contract if they’re forced to back out.
Make sure that you’re not only working with your client but also the other listing agent to shepherd all parties through the process. Panicky buyers and overeager sellers can make this a challenging prospect, but the truth is that most contracts with bump clauses still go through smoothly.
Advice for Sellers
A bump clause can be a boon for a seller when other potential buyers show interest. If you already have an offer, it’s easier to negotiate for more money or a contract without troublesome contingencies. But beware getting too greedy! The seller may only be focused on the bottom line, but there’s more to an offer than the dollar figure. A buyer with stellar credit and a home-sale contingency may still be a much better than a buyer with poor credit who’s ready to move in immediately, so do your due diligence.