26 Aug How To Use an Escalation Clause
To be a more competitive homebuyer, which the current market often warrants, you could include an escalation clause when you make an offer on a home.
An escalation clause is a provision in the offer that increases the purchase price depending on what other buyers’ offers come in at. The clause includes three basic components: the original offer price, how much the price can escalate above any other competing offer, and the maximum amount that you would be willing to pay for the home.
HOW TO BE A MORE COMPETITIVE HOME BUYER?
For example, say that you’re looking at a $800,000 house and you want to offer full price for it, but because of the competition surrounding the home, you’d go higher to stay in the running if better offers come in. In that case, we’d add two components to your offer. One, we’d say that we’re willing to pay the $800,000, but if someone comes in with a higher offer, we will increase our offer to exceed theirs by, say, $10,000. With this, if another offer came in at full price, yours would automatically increase to $810,000.
But you also need to include the maximum price that you’re willing to pay for this home, which we’ll say in this example is $875,000. That means if someone else offered $875,500, you’d be out. The main condition I always include is that if we win, the seller must show us the bona fide competing offer.
Here’s how an escalation clause can make your offer more competitive.
There are so many pieces to consider when it comes to selecting an offer to pick, but our goal is to make it easy for the seller to say yes to your offer over all others. That’s why I find out everything I can about the seller’s motivations in order to bolster the offer. Perhaps price is the most important thing, but it could also be that the seller is looking for a longer or shorter closing date, that they’ll need to stay in the home for a period after closing, or that they want to leave furniture behind in order to make their move easier. Whatever it takes to make your offer stand out.
With escalation clauses, buyers sometimes ask, if the seller picks a different offer, whether they’ll be able to see the other offers. The answer is no, you won’t; you’ll only get to see the other offer if yours was the one selected and the escalation clause is invoked. Bear in mind that escalation clauses aren’t guaranteed deal-winners.
I hope this explanation helps!
Please call me if I can help you with buying or selling in the desert!