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The Return of the Escalation Clause - Richmond VA Real Estate

By Shannon Milligan, Richmond VA Real Estate Agent/Associate Broker

Real Estate Agent with RVA Home Team 0225195925

March 19, 2013 09:04 AM

The Return of the Escalation Clause, Richmond VA Real Estate

As I mentioned in previous articles, the Richmond VA real estate market has shown clear signs of a return to a more balanced and healthy climate. Interest rates are still low, inventory is down, and prices are increasing. Another indication of this is the return of the escalation clause.

What is an escalation clause? This is verbiage written into a contract for purchase giving instruction to increase your offer by X amount of dollars over other verifiable offers up until a certain price. When is an escalation clause used? Typically a savvy Richmond VA Realtor will recommend this strategy when a home is suspected to be in a multiple bid situation.

Let’s use the example of a single family home that is priced competitively and is well conditioned. On the very first day on the market, there are scores of buyers with their agents clamoring to secure a showing. This signals that the property is in high demand. When there is strong interest in the home from a buyer, their agent will contact the listing agent to inquire if the home is still fully available. If the listing agent indicates that they have an offer or suspect they will have an offer momentarily, the buyer’s agent may recommend an escalation clause as an advantage over the competition. An offer may be submitted for full price, with a $1,000 escalation clause over other offers until a capped amount.

The escalation clause is a wonderful negotiation technique designed to help you obtain the home of your choice. When selecting your Richmond VA real estate agent, be sure they are armed with the tools to help you achieve success!

Want to learn more? Contact me, Shannon Milligan with Keller Williams Realty Richmond West, today and stay tuned to Downtown Short Pump for more tips and advice from my toolbox!

Originally published: http://www.downtownshortpump.com/the-return-of-the-escalation-clause/

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Michael J. Perry

KW Elite - Lancaster, PA

Lancaster, PA Relo Specialist

Didn't read all of the comments, but sometimes the clause reads " to NET the Sellers $1,000 more than any other offer". This when the agreement asks for Seller Assist(usually at lower price points).

Mar 19, 2013 11:37 PM

Richie Alan Naggar

people first...then business Ran Right Realty - Riverside, CA

agent & author

Any agent practicing this is at the top of their game. Sharing this info makes you the ruler of all yo survey...Good agent and good post here

Mar 20, 2013 12:33 AM

Margaret Goss

@Properties - Winnetka, IL

Chicago's North Shore & Winnetka Real Estate

Shannon - this is a common ploy here - so common that problems arise when several of the offers have the escalation clause. Where does it stop? $1001 over the highest $1100 over the highest? I'm not opposed to the idea, but when eveyone catches on, it loses its potential.

Mar 20, 2013 01:00 AM

Shannon Milligan, Richmond VA Real Estate Agent/Associate Broker

RVA Home Team - Richmond, VA

RVA Home Team - Winning with Integrity.

Joan - I agree. It is very important to put a cap!

Debbie - thank you!

Scott - yes, it is great for buyers to have another tool.

Hella - To me, proof is a copy of the page of the other offer price.

Erica - I have come across them twice in the last few weeks. Once on the buyer side and once on the listing side.

Joan - Asking for verification is important. I would request a copy of the page with the other offer.

Melissa - yes, we are seeing more of them once again. The well maintained homes that are priced right are in bidding wars!

Will - it does make an offer attractive. Shows motivation on the buyers part, in my opinion.

Pamela - ouch. It is hard to lose a deal over that little. However, usually means something better is just around the corner!

Tammie - I can see why some would think that. I am fine with it as long as I have verification and that can simply be a page of the contract with the offering price.

Wika - the amount may be different on all of them. Someone may say $500 over another price, another may say $1000, etc. And a CAP on the price is good. And, if they all are the same, then terms would be a great thing to consider, such as settlement date, cash offer, etc.

John - that's great!

Jane - You will have to let us know if they are ever used in your area!

Christine - I had a listing go on and we had 3 offers within hours and more calls than I can count. Great house, priced right.

Liz and Bill - I have been on both sides. Verification could be a copy of the other contract, just the one page, showing the offering price. I had a situation where I had one as a listing agent and the one with the clause was the highest offer anyway, so the clause didn't have to go into effect. And they had great terms.

Michael - that is a great point, and the listing agent needs to take the number in consideration and refer back to the comps to see if the highest would support it. And, to make the seller aware of options should the home not appraise. Here that is to 1) the seller drops the price to the appraised value 2)the buyer makes up the difference 3) termination.

Fernando - It needs to be capped!

Michael - I haven't seen it written that way, however so much language to play with.

Richie- thanks! Not saying this is for everyone, however I find it a great tool to educate the clients about.

Margaret - I believe that is when you have to speak to your clients about what number they would be upset losing the home over. Some people may offer $100 over any other offer while someone else could offer $15K as in one of the comments above. And, terms are not to be forgotten.

Mar 20, 2013 06:00 AM

Shannon Milligan, Richmond VA Real Estate Agent/Associate Broker

RVA Home Team - Richmond, VA

RVA Home Team - Winning with Integrity.

Belinda - thank you! Kathy - just recently seeing this again with the low inventory and the large amount of buyers. Katrina - one would write in a verifiable offer, so proof would be needed such as the one page of the offering. Now, if someone doesn't write that in there, then I can see where it could go down a different path. Jimmy - Same here ;) Tanya - just another tool in the bag! I think multiple bids are always exciting and overwhelming to the seller, no matter if there is a clause or not. However, I have found the agents that use the clause usually are writing great terms as well.

Mar 20, 2013 06:03 AM

Jill Sackler

Charles Rutenberg Realty Inc. 516-575-7500 - Long Beach, NY

LI South Shore Real Estate - Broker Associate

Novel idea for a post. I never had the opportunity to employ this tactic but will keep it in mind.

Mar 20, 2013 11:17 PM

Jeff Patry

Royal LePage ProAlliance Realty - Brockville, ON

Hi, Shannon. I LOVE it! I'm not sure if we can use this type of clause in Ontario, but I'd like to find out... Can you (or anyone else) give me a sample of the wording of the clause? Thank you... Once again, I love it!

Mar 20, 2013 11:55 PM

Marion Gordon

Keller Williams Kingstowne - Fairfax Station, VA

"Move With Marion"

I just recently recieved 4 Competitive contracts for "over-asking price" on a listing of mine in Woodbridge, VA. Two of them had escalatioin clause's in them, so I was able to "play one clause off the other" and bring the best deal for the highest amount to my client. In the "HOT" Northern Virginia housing market "escalation clauses" are extremely useful tools! - Marion Gordon MoveWithMarion.Kwrealty.com

Mar 21, 2013 12:05 AM

Sharon Parisi

United Real Estate Dallas - Dallas, TX

Dallas Homes

Shannon, multiple offers are becoming more common in Dallas. This is good information for Buyers and Sellers, in regard to escalation clauses.

Mar 21, 2013 12:59 AM

Ric Mills

Keller Williams Southern Az - Tucson, AZ

Integrity, Honesty, and Vast Real Estate Knowledge

An escalation clause without removing the appraisal contingency is really of limited use and can be dangerous for the buyer. Escalator clauses can be good if used wisely and are becoming the norm when multiple offers are expected. Make sure you do your home work for the client on both sides.

Mar 21, 2013 01:40 AM

Bob Miller

Keller Williams Cornerstone Realty - Ocala, FL

The Ocala Dream Team

Hi Shannon, our market is still way to soft for escalation clauses, but we keep hoping.

Mar 21, 2013 01:44 AM

Kimo Jarrett

Cyber Properties - Huntington Beach, CA

Pro Lifestyle Solutions

I think escalation clauses serve the seller and not the buyer because it takes the power of negotiation off the table. Any Realtor can determine if a property is hot and will advise their buyer to bid appropriately and allow the appraisal to settle the price if necessary.

Mar 21, 2013 02:07 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

I used one once and was told the bank would not look at an escalation clause. I think they are a good thing.

Mar 21, 2013 02:44 AM

Mark Wheeler

Roots Realty - Portland, OR

Interesting topic. Our local associations & attorneys frown upon this practice, as Tammie in comment #15 pointed out. When we receive these while representing a seller, we recommend they reject the escalation clause but counter that buyer at the maximum price the buyer stated will will do. Not necessarily a great deal for the buyer but it will get them the property. Regarding "proof" of the other offer(s), looking at the one page that shows the offering price from a 12 page contract does not "prove" anything. Those other contract terms could be very relevant. Where does the need for proof end? So, we recommend rejecting the clause but countering the offer. If the buyer is serious they will go for it. Plus there will be no "lawsuits waiting to happen" as a result. Thanks for the discusion!

Mar 21, 2013 04:42 AM

Beatrice M. Stambulski

COMPASS - Sherman Oaks, CA

Sherman Oaks Real Estate

Used it on my last 3 offers, 1 offer was kept as back up that 3 weeks later I opened Escrow for today (!). The other two still did not get through due to our CRAZY, Sherman Oaks Calif , double digits multiple offers and low inventory

Mar 21, 2013 06:21 AM

Rob Arnold

Sand Dollar Realty Group, Inc. - Altamonte Springs, FL

Metro Orlando Full Service - Investor Friendly & F

I like with buyers put in escalation clauses. As a smart Realtor, I know that I can get them to pay all the way up to their top price amount with some wise negotiating.

Mar 21, 2013 07:40 AM

Travis "the SOLD man" Parker; Broker/Owner

Travis Realty - Enterprise, AL

email: Travis@theSOLDman.me / cell: 334-494-7846

I've discussed the Escalation Clause with only one Client so far. We knew there was going to be another offer, so ended up at full price, thinking they would be a little under. The other party got it, but from the way the Listing Agent was acting, I think that SHE had the other Buyer, so it was sorta a stacked deck and my Client wouldn't have gotten it no matter what. Just one of those "ya wanna take a shower after you finish talking to them" type of feelings! Won't wste my time with ANY Listings from that Agent, snd probably that company. Bad feeling all around. From a small town only about 20 miles away, but really, they're in a sorta time warp there. Many people from there will agree!

Mar 21, 2013 01:06 PM

Lehel Szucs

All Seasons Real Estate, Inc. - Covina, CA

REALTOR of choice

never will use these tactics ... my buyer either makes an offer they are willing to or not ... escalation clauses are a cheesy way of doing business.... basically it says that the buyer is willing to pay more but only of there s competition? .... really ... my buyers will not reply to these kinds of cheesy offers

Mar 22, 2013 04:48 AM

Shannon Milligan, Richmond VA Real Estate Agent/Associate Broker

RVA Home Team - Richmond, VA

RVA Home Team - Winning with Integrity.

Sorry all...took me awhile to return to this. Some wording I use is: In the event of multiple accepatable offers, Purchasers agree to increase their offering price for the above property by $xxx above the highest price offered up to a max of $xxx. Sellers agree to provide a copy of the acceptable offer to purchasers agent aslong with the corresponding counteroffer from the seller.

This is what I use. You should speak with your broker/real estate attorney for wording for you and your area.

Apr 08, 2013 12:39 AM

Richard Weeks

Dallas, TX

REALTOR®, Broker

The Texas Real Estate Commission has prohibited agent here from using escalation clauses.

Oct 15, 2013 10:09 PM