Another controversial approach in the real estate industry that raises bidding wars – The Escalation Clauses. Barry Kainth is really concerned about this approach and its consequences. The escalation clause is implemented to help buyers win bidding wars.
Under the escalation clause, the would-be buyer is allowed to submit an offer for a house and include a provision to increase it to top any other bidder at the present amount.
A bidder under the escalation clause can beat the highest bid by $500, $1000, $2000, or $5000 whichever amount is decided during the agreement. By knowing the highest price and putting $500 -$5000 extra they win the bid. The situation becomes complex when they have two bidders under an escalation clause. In that case, RECO says that seller should ask both the parties to submit a final offer.
Realtors are prohibited from disclosing any terms of the purchase offer to anyone, and this practice totally destroys that prohibition penetrating the privacy of the process. But, there is nothing mentioned in the Real Estate and Business Brokers Act, 2002 (REBBA), that restricts the use of escalation clauses.
Now, this kind of practicing is again in favor of sellers, international buyers and national buyers who have undocumented money. The common buyer is again suffering because the premium buyer has the upper hand here also.
In an advisory released on Thursday, Real Estate Council of Ontario (RECO) said that “Escalation Clauses are certainly on RECO’s radar, and we’ve been receiving a number of questions from registrants about how to deal with them.” The council said that “It will review and investigate the complaints related to escalation clauses, and if warranted, will take appropriate action.”
RECO does not endorse the use of escalation clause and has no power to rule out it uses. Barry Kainth thinks RECO should do more to discourage such practice because it is abusing the real estate market of Canada. It’s terrible for buyers who are losing and it’s terrible for a common home buyer. They are losing the deals just because of these Clauses.
What’s even worse is that the people who buy the properties don’t even intend to live in it. It’s just their investment asset. Barry Kainth and Galaxy Gate have published articles before highlighting these issues before. You can read these…