Rising Use of Real Estate NDAs, Escalation Clauses

In a hot market — with no shortage of high-profile clients — real estate deals are increasingly including provisions designed to make offers extra-competitive and secretive.

NDAS In L.A., nondisclosure agreements are on the rise — with an increase in recent years from the buyer’s side. That’s because sellers typically own the listing photos, and new owners not only want to keep home addresses private but keep pictures offline as well.

“Everyone is on high alert over the recent home-robbery invasions,” says Hollywood business manager Elizabeth Campos. “Nerves get rattled when they think of someone being able to recognize something in the home that directly ties them to it.” It’s not just the buyers and sellers who are bound to silence, either. Says top Re/Max agent Jordan Cohen, “In order to truly protect their privacy ... I have seen it where inspectors, designers and even real estate assistants are required to sign.”

ESCALATION CLAUSES Another emerging trend doesn’t have the same broad support, even if it sounds foolproof. Some buyers are including escalation clauses in offers, essentially promising to outbid whoever comes in with the highest initial offer. “You better have an escalation clause or you’re not going to get it,” says Emma Hernan of Oppenheim Group. “It incentivizes the seller to pick you as opposed to the next person, even if it’s the same offer, because you will go [for example] 20 grand over.”

But other agents tell THR that the novelty can backfire. F. Ron Smith of the Smith &

Berg Partners team at Compass says adding an escalation clause can be a creative way to stand out in a multiple-offer situation, but only if the listing agent is familiar with the clause. He adds, “It is important as a buyer’s agent to craft a narrative that accompanies the use of the escalation clause within your client’s offer and to convey the power of this strategy to the listing agent and the seller.” And Cohen says he actively advises sellers against trusting them, especially because of contingency laws regarding inspections, loans and disclosures, which give buyers ways to cancel contracts. “With open contingency laws in place, it is too easy to throw up an escalation clause where a buyer can lock up a house at a price they truly will not pay and try to renegotiate later,” he says. “I am sure this is not always the case, but this is what I have recently seen happen.”