As the Spring market heats up and the supply of homes is being outstripped by buyer demand it is not uncommon for desirable listings to receive multiple offers. Buyers must be ready to make the best possible offer in order to secure their dream home. It is a big letdown when you lose a house to a better offer.
In an ultra competitive market a buyer can unleash a secret weapon that when executed properly will ensure their offer gets accepted. It is known as an escalation clause.
An escalation clause is an addendum to the Agreement Of Sale in which a prospective buyer says:
I will pay X dollars for this house, but if another buyer submits a bona fide offer that is higher, I will raise my offer in increments of Y dollars to a maximum price of Z
An escalation clause states that you are willing to outbid any other offers on the home by a predetermined amount, up to a ceiling price.
Example:
You offer $400,000 on a home with an escalation clause stating that you will outbid other offers by $5,000 up to a maximum offer price of $420,000. So if another buyer makes an offer of $405,000, your escalation clause will increase your offering price by $5,000 up to $410,000 for the home. If a buyer offers $425,000, then according to your escalation clause you are out of the bidding, because the offers have gone over your $420,000 cap.
The escalation clause addendum also requires the seller to produce the competing offer in writing that triggered the price escalation so you can verify that an additional offer did indeed exist.
An escalation clause is particularly useful when you have been informed that you are in a multiple offer situation for a home. The escalation clause will automatically raise your offer on the house by the predetermined increment, up to the maximum amount that you have authorized. It eliminates the back and forth of offer and counteroffer and can wind up saving you money by having a “floating” offer price instead of a fixed price.
I have successfully used the escalation clause in order to secure a property for several of my clients in multiple offer situations. Some agents shy away from it’s usage but maybe you should shy away from them.
Wallingford PA Real Estate – Wallingford, PA 19086
