Here’s some helpful information and advice regarding escalation clauses.
You’ve probably heard of the term “escalation clause” before, but do you know exactly what it is?
An escalation clause is a written addendum into a purchase contract offer that states you will pay a certain amount over the next highest offer up to a certain number. For example, a $500,000 offer on a home with an escalation clause that goes all the way up to $520,000, or $2,500 higher than the next highest offer if it doesn’t. If one comes in for $510,000 for example, your offer automatically goes up to $512,500. It’s up to the seller at this point whether or not to accept. This is a great tool to utilize to win. However, it does lay all your cards on the table.
Along with an escalation clause, you could also do any of these things to strengthen your offer:
1. Waive contingencies
2. Increase down payment
3.Include appraisal gap coverage. With this included, your escalation clause is even stronger. You will be able to offer an amount of money over the home’s appraised value to cover the difference between it and the agreed-upon purchase price. In a normal, balanced market, you won’t see a lot of this, but it’s necessary today because things are so competitive.
You don’t have to use any or all of these strategies, but they will help you be more competitive. The most important point of today is that you should always be really comfortable with your top-end price. You don’t want to be so overextended that you become stressed and aren’t able to enjoy other things in life or put yourself in a bad financial situation.
If you have any questions for me about buying a home, selling a home, or real estate in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.
