It’s a very strong seller’s market out there, and many properties are receiving multiple offers. When making an offer, you have two options to consider.
First, you can make your highest and best offer, and the seller can either accept it, reject it, or counter it. Your second option is to use an escalation clause. An escalation clause is a provision in the offer that increases your price based on the other offers the seller receives. There are three components to an escalation clause: your original offer price, the amount your offer will increase over a competitor’s, and the max amount your offer will increase.
As an example, a property is listed at $500,000 and is likely to receive multiple offers. My buyer could offer $500,000 with an escalation clause stating that they’ll pay $1,000 higher than any competing offers up to $510,000. So if another offer came in at $505,000, my buyer would pay $506,000, but if an offer comes in at $511,000, then our offer wouldn’t increase any further. Keep in mind that an escalation clause is an ‘all cards on the table’ option, so the seller could counter your offer at your maximum amount.
An escalation clause is a provision in the offer that increases your price based on the other offers the seller receives.
There are other ways to be competitive besides just raising the price, so ensure you’re offering a price that you’re comfortable paying. A cash purchase (no loan contingency), negotiating a convenient closing date for the seller, or cutting out some or all contingencies are also all great tactics to set your offer apart.
If you have any questions regarding escalation clauses or real estate in general, please feel free to reach out via phone, text, or email. We’d be happy to help.
