L.A.’s Ultra-Competitive Real Estate Market Sparks Nontraditional Negotiation Tactics
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 LA 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 about 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.”
Adds another business manager with A-list entertainment clients, “Publishing their address with photos is essentially providing blueprints to the public.”
It’s not just the buyers and sellers who are bound to silence, either. “In order to truly protect their privacy, it is necessary to have everyone sign an NDA,” says top Re/Max agent Jordan Cohen. “I have seen it where inspectors, designers and even real estate assistants are required to sign. If these professionals are not willing to sign, then it is time to find new professionals.”
Even if everyone involved keeps the sale to themselves — and the property is purchased through a trust or LLC — it’s still an uphill battle to keep the information from becoming public when there’s voracious consumer interest and people whose jobs revolve around reporting such deals.
“NDAs have proven to be worthless because of the internet,” says top business manager Warren Grant, who notes that people scour public records looking for sales above a certain threshold and use it to doggedly chase down information. “They figure out who the clients are and publish unauthorized stories. It’s frustrating and sad that people don’t respect anyone’s privacy rights.”
ESCALATION CLAUSES Another emerging trend isn’t as widely used, even if it may sound 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 overs. Not everybody knows that. It’s a little trick of the trade.”
The strategy is more prevalent in certain neighborhoods and price points, notes Hollywood business manager Andrew Crow: “Escalation clauses are common in the entry-level markets like Silver Lake, Culver City and Mar Vista where a $1 million bungalow fixer will get 10, 20 or 30 offers.”
Reggie Gooden, another business manager with top entertainment clients has also seen the clauses becoming more common and says it’s a sign of the times. He notes, “This is by far the most competitive market I’ve seen in quite a while, and clients should be prepared to execute an offer same day if they find a property they like.”
Promising to outbid a top offer seems like a smart strategy, 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 upside of 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.”
It’s also worth noting that while an escalation clause promises a higher price quickly, there’s no guarantee that traditional negotiations with another potential buyer wouldn’t eventually result in a better offer in the long run.
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.”