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December 1st, 2021 12:26 PM by Barbara Doeringer
An escalation clause is something that can be included in an offer when attempting to purchase a home. This clause helps to win a home when there is a bidding war or heavy competition for it. In the current crazy real estate market, this clause has been used more often than ever before.
An escalation clause will state that if another offer is made on the property, your bid will automatically go up by a certain amount so that your offer remains the highest. It can state that you (as a buyer) are willing to pay a particular price, but you will go up to a pre-determined limit if competing offers are received. As an example, you can offer a set price, then state that you will go up to $10,000 over any other offers, in $5,000 increments. However, this is still no guarantee that you will be the successful bidder.
You should always use a real estate agent or attorney if planning to use this clause in a contract in order to figure out whether your situation needs it as well as your amount and ceiling in the offer. Also, in order for this to officially go into effect, the seller must prove the competing offer so that the escalation clause cannot be used to simply get you to pay more for the home.
There is a downside to consider when using this clause as you have to tell the seller right away how much you are willing to pay for their house. That means their counteroffer can be your ceiling price. So, you might also want to include an appraisal contingency that will protect you from paying more than the market value of the home.
Use an escalation clause only when you are genuinely in love with a home in a very competitive market. Also remember that not all sellers prioritize the highest price when accepting an offer. They may consider a lower cash offer or there may be other conditions of the contract that better meets their needs.
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