Real Estate

Escalation Clauses…what are they and why (or why not) use one?

Strangely enough, we are actually using escalation clauses in offers again.

An escalation clause is used when you are in a competitive offer situation, and you want to make sure that your offered price escalates over other offers. There are several ways to structure these, and there are actually two types of clauses…one that can be used multiple times and one that can be used only once. For Example:

You offer $500,000 for a property, but will escalate over any offer in $5000 increments up to $550000.

This can often secure obtaining the home; however, it can backfire as well.  Some listing agents look very carefully at escalation clauses and will not just accept the highest escalation. An experienced listing agent knows that if it escalates too high, there is the possibility that the home will not appraise, and then the deal needs to be renegotiated (unless the purchaser is putting a lot of money down and would be able to close at the offered price regardless of the appraisal). There are other things that listing agents look out for when they see these clauses and it doesn’t always put your offer at the top of the list. The point is, work with your agent to carefully structure your offer in a multiple offer situation and give the best offer that is still appropriate for the area based on past sales. This is a very dumbed down explanation, but hopefully gives some insight into what the market is doing and how to be savvy in the midst of it.

Happy Tuesday!

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