What is an Escalation Clause?
Today’s market is definitely seller-oriented. That means that oftentimes buyers are finding out that they have to compete when buying a home. On of the ways to be competitive is to write an escalation clause.
An escalation clause is simply a clause that states that your offer is “x” amount, but you will increase your offer by a certain increment up to a maximum amount. For instance let’s say the property is listed $250,000. We make a full price offer, but then put a clause that says “I'll pay a thousand dollars above any other offer up to a maximum of $275,000.”
Should the seller receive multiple offers, they can take the highest one (they must show you proof of the offer!) and you can purchase the property for $1000 over that offer, provided the price you’ll pay is $275,000 or less.
One negative in an escalation clause is the fact that the property could escalate up above appraisal bank. Armed with that knowledge, the buyer need to put a clause in there also that you're willing to pay above appraisal value. Using the same example if the property was $250,000 and you wrote an escalation clause for a thousand dollar increments up to $275,000 and let's just say you landed $265,000. If the property only appraises for $255,000 you're ten thousand dollars short on your loan so you need to be able to pay that ten thousand dollar shortfall in cash because your loan won't cover it. A long as you're comfortable doing that and you want the property bad enough, you might want to consider an escalation clause.
This is just one of the many tools a Realtor can help you use in today’s competitive market.
If you have any questions about this or anything else in the real estate process just give me a call. I’m Alan Castleman with Hickman Realty Group, and I’m here to help you!
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