Why Escalation Clauses Are a Bad Idea

Real Estate Agent with Kona Home Team (luva llc) RS 62947

Aloha, Lance Owens (RS) here with KonaHomeTeam (luva llc). I go over this topic when training agents, or educating my clients, (both buyers and sellers) - some get it, some don't, and let's face it, if there was one perfect way to negotiate, we would all be doing it!
What is an escalation clause you ask?
Escalation clauses: This is a clause in the offer that states if a competing bona fide offer is made on the property, the buyer’s offer will automatically increase by a certain dollar amount over the competing offer up to a maximum

Reason #1: You just tipped your hat as to how high you are willing to go in a negotiation - that's not a very good start. I liken it to playing a game of poker, but you are the only one at the table that is placing a bet, with all your cards - face up! (if so, you wanna play poker next Friday)

Reason #2: You have also told the seller, hey I think your property is only worth "X" amount, but if I am forced to, I will go up to "Y" amount. Sellers agents are getting smarter and advising the seller that you push the buyer to pay over what they feel the value is..... the first thing they do is, try and get that money back during the home inspection...

Reason #3: With so many newer agents that are not familiar with a market like this, you may get several of these types of offers at once - confusing the seller, especially if the sellers agent is new also. Your buyer would be better served by presenting an offer that was their best and final, and CLEAN. That doesn't mean give up inspections and protections, it just means crafting it clean.

Reason #4: Now the National Association of Realtors (NAR) agrees with what I have been saying for years ;) (see 4 ways to reduce risk .... May 6, 2021 )

Bottom line, in this market you should be going in with your "Best and Final" offer and not play the escalation clause game. Speaking of "escalating" with todays homes going up in value faster than appraisals are, an "Appraisal Waiver" will go much farther than an "Escalation Clause" will.

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Aloha, and have a great day 

Lance Owens (RS)

(808) 936-8383



LUVA Real Estate 

75-240 Nani Kailua Dr #8 , Kailua Kona, HI. 96740 (Pines Plaza

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