Escalation Clause: Help for the Home Buyer in a Competitive Market

By
Real Estate Agent with Coldwell Banker Realty NJ# 9483506

Many buyers wonder if they should wait a little bit before actively searching for their next property. Price reductions all over the country leave buyers wondering if the market already reached its peak. If prices are on the decline, it may seem logical to wait. But in hot areas like Westfield, Scotch Plains, Cranford, and many of the surrounding areas, sellers still rule the market. So, you may find yourself in a bidding war with other buyers for a property. That means that you need to make your offer stand out. How? An escalation clause could be just the ticket to capturing a seller's attention.

When facing a bidding war on a luxury NJ home, you might want to include an escalation clause with your offer to stand above the other home buyers.

How an Escalation Clause Can Help a Buyer Make Their Offer Stick

What is an Escalation Clause?

In a regular offer, the buyer agrees to pay X dollars for the home in question. When they include an escalation clause, they propose paying an additional dollar amount over another seller's higher offer up to a definitive amount. For example, the seller lists the price at $600,000. You put in an offer for $610,000. Your REALTOR® did their due diligence and knows that another offer is already on the table. While the seller's agent may not disclose how the current highest offer is, they do say it is higher than that. So, you include an escalator that says you are willing to pay $5,000 more than the highest offer up to $625,000. The other offer is $615,000. Then, your new offer automatically goes to $620,000. The seller accepts your offer with the escalator and escrow opens up. 

When Should You Include It in Your Offer?

An escalation clause should only be used when you are fairly certain you may find yourself in a bidding war. However, doing so lets the seller know exactly how much you are willing to pay for their home. That leaves you a bit vulnerable when it comes to negotiating. The seller may even decide to counter the escalator with a higher price, knowing how high you are willing to go.

Always discuss this option with your REALTOR® before submitting your offer to the seller. They can use their resources to find out whether this is a good idea or not.

Scott Gleason, CRS at Coldwell Banker Realty – East, NJ Luxury Homes

Comments (1)

Richard Weeks
Dallas, TX
REALTOR®, Broker

Our real estate commission will not allow agents to draft escalation clauses.  If a buyer wants in include an escalation clause they must have an attorney draft the clause.

Aug 13, 2022 03:31 AM