Sellers that are worried about entering into a contract for fear of missing out on a better offer can include a bump clause. The clause allows sellers to accept your contract while still marketing the home. If a better offer comes along, the seller can ‘bump’ your offer and take the new offer.
How the Bump Clause Works
Sellers typically include a bump clause when buyers ask for a contingency – typically the home sale contingency. If you have the right to back out of the contract because you have to sell your home first, sellers want the chance to keep marketing their home. Offering a bump clause may encourage a seller to accept your bid.
If the seller does get another written offer, you have a few days (the exact amount depends on the wording in your contract) to decide what to do. You can withdraw your offer or waive your contingency. If you terminate the contract (don’t buy the house), you’ll receive your earnest money back and the seller moves on with the contract with the new buyer.
The bump clause is only effective as long as your contingency. Once your contingency expires or you satisfy it, the bump clause expires as well.
Why Sellers Like the Bump Clause
Sellers want reassurance that they’ll sell their home. In a slow market, they may hesitate to accept a contract with a contingency. If the sale falls through, then the seller is back at square one – not somewhere they want to be in a slow market.
The bump clause gives sellers reassurance that they have an offer, but can keep looking for other buyers. It’s like an insurance policy. They give you what you want (home sale contingency) while still marketing the property in the hopes of finding a buyer without a contingency.
What is an Active Offer – No Bump?
If the seller accepts an offer from you with no bump it means they can’t back out of the contract in favor of a better offer. The active offer is one the seller accepts with or without your contingencies. The seller must take the home off the market and move forward with the sale.
Can a Seller Back Out Without a Bump Clause?
Technically, a seller can’t back out of a sales contract without legal ramifications if there isn’t a bump clause. However, each contract will have different contingencies and possibilities, which means you should talk to your attorney about the chances of the seller backing out. In most cases, if the seller does back out, you are able to get your earnest money back that you put down on the home.
The Benefits of the Bump Clause
The bump clause offers many benefits for sellers:
- Sellers may be able to get a higher bid on their home using the current contract as leverage. If the new buyers really want it, they may make a higher bid on the home.
- Sellers may be able to get a ‘stronger’ offer aside from the bid. If a cash buyer comes through or a buyer that doesn’t have any contingencies, it may be more productive for the seller.
While buyers don’t have the same benefits, there are advantages. Some buyers may feel relieved at the thought that their bid can get bumped if they don’t sell their home. The real estate market can be so volatile, making it hard to ensure that a home will sell. Knowing that the buyer can get out of it with the contingency and/or the bump clause can provide some reassurance.
Should you Include a Bump Clause?
Including a bump clause as a buyer can make sellers more willing to accept your bid. When sellers know they have a ‘way out’ or that they aren’t stuck with your contingency, they are more willing to accept the bid. Of course, you don’t want the seller to execute the cause, especially if your home is about to sell, but it does give you the edge when making a bid on a home.
The bump clause helps everyone involved in the transaction. It’s like a safety net for sellers and even a little bit for buyers too. It ensures that the home will sell one way or the other without putting the buyer’s earnest money at risk or tying the seller into a contract that may or may not compete.