Whether you’re looking to buy or sell real estate, you may occasionally run up against a “bump clause.” While they aren’t entirely common, they are out there, and it’s an important strategy to have in your tool belt — just in case you need it.
In this article, we’ll explore what a bump clause is and pass along some advice for buyers and sellers who may want to leverage it in a real estate transaction.
What is a bump clause?
A bump clause is a way for a seller to start the transaction process with a buyer and still market their house for a better offer. Bump clauses aren’t used regularly in real estate, but when the market is right, you’ll see more of them. According to the Wall Street Journal, the clause tends to become more popular in markets that are transitional, where once-hot home sales are cooling but sellers haven’t yet adjusted their expectations.
A buyer usually activates a bump clause when they find a home they like and want to purchase it, but must sell their own home first. They’ll introduce a bump clause into the contract that states that their offer is contingent upon the sale of their house.
If the seller gets a better offer before the terms of the contingency are met, they then notify the original buyer. After that, the buyer has 72 hours to wave their home sale contingency or back out of the deal. That 72-hour rule is the reason a bump clause is also known as a 72-hour bump clause.
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Bump Clauses for Buyers
As a buyer, the bump clause can provide a safety net from the uncertainty of selling your own house.
Many buyers like to go out into the market to poke around and see if there is anything they’ll want to buy. They don’t want to sell their house until they are absolutely certain that they have a house that they love.
This is especially true for buyers who are looking for certain types of housing, such as ADA homes or a house with a mother-in-law apartment.
If you aren’t ready to list your home for sale but want to take a peek into the housing market—this clause may provide you a way to get the best of both worlds.
Some sellers don’t want to accept offers with a bump clause attached, but there are ways you can make it more attractive to a seller. Here are a couple ideas:
Place a full offer.
If you are planning on placing conditions upon the sale, make sure you have room to bargain. Going in with an ask for them to accept a lower price _and_ hold out until you sell your house may be a bit much. Turn the tables in your favor by offering their asking price. They’ll be more inclined to oblige your terms if you’ve met theirs.
Show good faith.
Help the seller feel safe with your offer by going the extra mile in marketing your house. If it’s been a month or so and you haven’t received any offers, you may want to lower the price and show the seller. Keeping the seller in the loop prevents them from feeling like they’re just twiddling their thumbs waiting for something that might not happen.
Bump Clauses for Sellers
As a seller, a bump clause may not sound all that appealing. It may not even be the right direction to take for your home. Here are a few ways to see if accepting a bump clause is right for you.
Time on the Market
If your home has sat on the market for a few months with no real offers despite offering incentives, you may want to try entering into a contract with a bump clause. Some homes only attract a niche crowd, and having an offer that is contingent upon something else is still better than no offer at all.
Do you need to sell at a certain price? Accepting a bump clause in an offer allows you some room to negotiate your price. This will help both parties—and who knows! You may get a better offer down the road.
If it’s a buyers’ market and houses are becoming difficult to sell, accepting an offer with a bump clause may help you sell faster.
Before you accept any active offer with/without a bump, talk to your real estate agent to make sure your house is at a good price. You may end up selling without a bump clause!
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