The Escalation Clause

By
Real Estate Broker/Owner with FITZGERALD Real Estate 9500521
In an ultra-competitive Real Estate market such as one we are experiencing, prospective buyers are looking for ways to be the one the seller chooses when competing with multiple offers. Some situations cannot be avoided, such as a cash buyer being chosen over a buyer with a low-down-payment requiring PMI. Most sellers will choose a cash buyer over one needing financing, especially loans that will require the seller's house to meet specific standards of loans requiring FHA, USDA, and VA backing, which adds another layer to the loan approval.
 
Buyers are looking to get a leg up on their competition trying to be the winning bid. One way to achieve this is to add an escalation clause to their offer. It states that the buyer is willing to pay a specific amount over the highest bonified offer up to a certain amount. An example of this is a buyer who offers 200,000 and willing to pay 1,000 over the highest bonified offer up to 207,000.
 
The buyer should be mindful that if an appraisal is required for their purchase, the high-end price they are willing to go should be realistic. To further secure this as a viable option for a seller to consider, the buyer could add that they are willing to pay the difference between the appraised price and the agreed-upon escalated sale price as long it is over the list price. In that case, the seller is assured they will not have to drop their price based on an appraisal coming in below the sale price.
 
An escalation clause, done thoroughly, thoughtfully, and with realistic amounts, can entice the seller to choose their offer over others.
 
Posted by

FITZGERALD Real Estate  

Corinne A Fitzgerald
AHWD, CBR, CHMS, CIPS, CRS, GRI, PMN
FITZGERALD Real Estate
116 Federal Street
Greenfield, MA 01301
413-320-9509  cell/text
413-376-4433 direct office line

 Corinne@Realtor.com
 2015 President - Massachusetts Association REALTORS®
         2012 President – REALTOR® Association of the Pioneer Valley

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Comments (4)

Kristin Johnston - REALTOR®
RE/MAX Realty Center 262-567-2455 - Waukesha, WI
Giving Back With Each Home Sold!

Great information.  Thanks for sharing and enjoy your weekend!

Apr 17, 2021 07:06 AM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Good morning Corrinne! Somehow I was under the impression that NAR wanted these eliminated

Apr 17, 2021 07:39 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Corinne and thanks for your take on them.  I still see so many contract with them in, it that what the market calls for it works.

 

Apr 17, 2021 07:48 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

In our area esclation clauses just do not work as sellers want a clean contract and do not need to go back to a potential buyer to give them an opprotunity.  There are too many buyers with firm easy to close contracts.

Apr 17, 2021 02:16 PM