Key Info About Escalation Clauses
What is an escalation clause, and when should it be used?
As a buyer in today’s crazy seller’s market, how can you navigate the market to get the best opportunities without overpaying for a home? Well, there are two different kinds of offers in the market right now: 1) Your best and final offer, which isn’t negotiable, and 2) an offer with an escalation clause. With an escalation clause, you can automatically increase your offer to exceed your competitors’ up to a cap amount that you set. There are three things to consider when it comes to escalation clauses:
1. What is the original purchase price?
2. How much are you willing to go above other offers?
3. What is the highest price you’re willing to pay?
Here’s an example to help you understand: Suppose you were looking to buy a home listed for $200,000. Initially, you offered $210,000 for the house, and a competitor offers $212,000. With an escalation clause, you’d need to consider how much above that offer you’re willing to go, and at what point you would no longer be able or willing to escalate your offer.
Escalation clauses are great tools to help buyers compete, but it’s also important to work with a great real estate agent because you’ll want to have some nuance within the contract regarding your finances. Cash offers should present no issues, but if you’re financing the purchase, you’ll also need to consider whether you should take out the appraisal contingency. A professional agent should be able to advise you on whether that’s the best option for you given your circumstances.
If you have any questions about escalation clauses or buying a home in general, don’t hesitate to reach out to me. I’d love to help you.