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Escalation Clause: A Buyer's Helper to Win That Bid

Real Estate Agent with Coldwell Banker Residential Brokerage SA552583000

November 17, 2021 11:48 AM

The Havasu real estate market continues to favor the seller. However, serious home buyers might want to take advantage of a slower wintertime market. While inventory remains low, the pool of buyers dwindles from October to around January/February. So, if you want to buy a Havasu home, now is actually a great time to do it. Nonetheless, you still may face some stiff competition. After all, other buyers looking to purchase homes among a limited inventory also may want the same home you are interested in. Therefore, you need a solid offer to impress the seller. Sometimes, that may mean including an escalation clause.

Escalation Clause: A Buyer's Helper to Win That Bid

What Is It?

First of all, it might help to know exactly what an escalation clause means. This clause states that you are willing to pay a certain amount of money over the highest competing bid. Usually, it increases incrementally to a predetermined ceiling. However, submitting the highest offer does not always mean that it will be the winning offer. Even so, it might prove helpful to push your offer to the top of the pile.

How Does This Work?

Let's say you offer $400,000 for the home in question. But, you add a clause that says you agree to pay $5000 over the highest bid up to $425,000. If another buyer offers $410,000, your offer automatically increases to $415,000, making your offer the highest. Never make your limit higher than you can afford. You still need to include your pre-approval letter with your offer. Also, keep the home's value in mind when deciding the limit of your escalation clause. Remember, you never want to overpay for a property. Plus, you might want to include an appraisal contingency as a backup. Banks will not approve a loan for more than the value of the home. Otherwise, the difference between the appraised value and the agreed-upon sale price comes out of your own pocket. Unless you absolutely LOVE the property and cannot live without it, this may not be the most desirable outcome.

The Downside

With this clause, you show the seller how much you are willing to pay right off the bat. So, they may counter your initial offer with that number instead of something lower. Not all offers should include this clause, though. Only implement it when you know you face a multiple-buyer situation. Your real estate agent can help you determine when that comes into play. Besides, not all sellers automatically take the highest offer. Other factors may make them consider choosing someone else.

Thinking of buying a Lake Havasu home? Contact me today. You could be ringing in the new year in your new home.

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