Escalation Clauses Explained!

    Escalation Clauses Explained!

    Sep 22, 2020

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    Do you know what an escalation clause is and when you should use it? In this episode of Leaving A Legacy, we’re going to talk about a common real estate addendum that we've been using lately called an escalation clause. When the market’s hot and you want to make sure you don’t lose out on a house with multiple offers, this could be a lifesaver to get you the home you want.

    What Is An Escalation Clause?

    Put simply, an escalation clause means that you are willing to go a certain amount of money above your offer if the property has multiple offers. Here in South Florida, we have a very hot market—and have been using escalation clauses fairly often. To better understand what it means, let’s take an example.

    Let’s imagine that we have a house that's listed for $300,000. With such a hot market right now, we know that property will most likely get multiple offers. To better ensure our client gets that property, we send an addendum saying that the buyer is willing to go up to a certain amount of money—like $1,000—above the highest offer. This means that if someone has put in an offer for $310,000, you're willing to go up to $311,000.

    How It Works

    Of course, the escalation clause also has a cap. For example, let’s say you’re willing to go up to $1,000 on the highest offer, but no more than $315,000. You might be wondering what would prevent the seller from telling you they have the highest offer that would be your cap. However, for the escalation clause to go into effect, the seller has to give us sufficient proof that they've received a higher offer.

    If the escalation clause is used, the seller still has to send you the counteroffer and you as the buyer will still have to initial the changes. This gives you more options, enabling you to make the right decision once the counteroffer comes in. While not every property or client uses an escalation clause, it’s very effective if you know a multiple offer situation could cause you to lose out on your dream home.

    An Escalation Clause Could Be Right For You

    When deciding to use an escalation clause, it’s important to know what you’re getting into. While there are some great benefits, it’s best to consult with your agent to understand exactly how it works. If you have any questions, feel free to give us a call at (754) 581-3452 we’ll be more than happy to discuss escalation clauses in further detail.

    Make sure to stay tuned to the next episode of Leaving A Legacy for more real estate tips!