Purchasing a home today will be met with stiff competition.
That’s why it’s important to use everything within the toolbox to get ahead.
One such tool, the escalation clause, is a section within a real estate offer contract that gives the buyer an option to “escalate” the agreed price if some condition is met.
For example, as part of the agreement, the buyer will increase the price to a predetermined amount if another buyer comes in with a better offer.
You can see how useful this clause can be, especially as home prices move up less aggressively than just a few months ago.
You and your real estate team might decide to write in an escalation clause if you think the listed property will receive multiple offers, which is typically the case in today’s market.
But it also gives you the flexibility to make a good offer without going too much over asking price for a real shot at striking a deal.
In short, it will be difficult to renege on this detail of the contract.
The seller made a commitment to move forward with you in part because you sweetened the offer with the escalation clause.
Backing out is permissible if another contingency goes unmet or if a condition of the contract allows it.
Are there any risks?
As noted above, once you agree to the escalation clause, it’s hard to undo.
Another downside is that it exposes your negotiating position and lets the buyer know what your maximum number is. The seller, therefore, can counter you and ask you to bump up the offer to the maximum, with little to no buyer recourse.
An escalation clause also doesn’t guarantee that the offer will be accepted. The seller might prioritize a speedy process and want nothing to do with repairs. And if the escalation clause isn’t convenient to the seller, they can easily say no thank you.
How it works
Your real estate agent will fill in the appropriate language. The escalation clause will include the amount or how much you’re willing to increase the price based on certain triggers.
It’ll also include the ceiling price, which is the maximum amount you’re willing to pay.
Finally, the agreement requires the seller to furnish proof of another competing offer for the escalation clause to kick in.
An escalation clause is a powerful tool, but it should be reserved for the home you absolutely have fallen in love with. Buyers should remain realistic as well when writing in an escalation clause. The primary objective is to show the homeowner you are serious about buying the home. And the numbers you submit will speak for themselves.
So as you navigate the competitive field of homebuyers, remember to work closely with your real estate professional to deploy every possible homebuying tool to increase your chances of success.