An escalation clause is within a contract between the buyer and the seller of a home, stating that if another offer on the house is accepted (by the seller) during the period when this escalation agreement is in force, then the sale price will be increased to match that of that other offer.
To be more specific, it means that if an escalation clause is written into your real estate contract, and you are in first position by having your offer accepted on any day after your escalation takes effect while there are competing offers still valid or pending, then your closing price will escalate to match all competing offers’ highest prices rather than just one higher than yours. This escalation clause can win you the house without paying as much as you are willing.
This escalation clause does not apply if the seller accepts your offer without an escalation agreement. This escalation clause does not come into play unless you are in competition with other buyers, or are negotiating for a home where there are more than one offers on the table at once. To reiterate, this escalation clause can win you the house without paying as much as you are willing only under certain circumstances.
Let’s explore how an escalation clause might look in a contract:
Purchaser hereby agrees to pay $_________ more than the highest verifiable offer up to $__________.
Let’s imagine there are thee offers on a house. Typically, in this scenario, there’s a deadline to have your ‘highest and best’ offer in. Let’s pretend our offer has a sale price of $300,000 with an escalation clause that reads “Purchaser hereby agrees to pay $2000 more than the highest verifiable offer up to $320,000.”
The second offer is a flat offer of $312,000.
With all other parts of the contract being the same, our final sale price would be $314,000. As you can see, we didn’t pay what we were willing to go to, which would have been $320,000.
As you can see by this example, it’s a nice ‘ebay style’ way to bid on a house. There are some agents who state, “No escalation clauses” and often this says to me, they are old school and just can’t figure it out.
I have some other tricks I would add to beef up the offer and make sure we are the strongest possible buyer. I would include an appraisal bridge, a refined inspection clause, among others. If we were the first offer in, I might suggest we offer a ‘signing bonus’ which is something most agents have not thought about. Agents often put an expiration date on an offer to try to force the signature and acceptance of the contract. This does nothing but irritates the seller, instead let’s offer a signing bonus of $2000-$5000 if the seller signs before a certain DATE and TIME. If your realtor isn’t talking to you about ways to beef up your offer, it may be time to think about hiring a realtor with a little more experience, as this market can be tough, and losing house after house will wear on you. As a seasoned realtor, I always call the listing agent before I write a contract to find out what the seller needs are, is it occupancy, a quick closing, or something else? If your realtor isn’t making that call, it’s a red flag. You don’t throw a brick through the window with an offer to buy the house, you want someone who will knock on the door and see what it’s going to take to get it, right?
Listed on this page are some additional buyer resources:
https://www.arbormove.com/buyers
If you’re interested in purchasing a home in the Ann Arbor area, a quick search page is here:
https://www.arbormove.com/ann_arbor_real_estate
As always, if you’re interested in buying or selling your house in the Ann Arbor area, please reach out to me, Middy Matthews at 734-239-3796. If you’d like to browse the web site, https://ArborMove.com will get you there or send us an email at Sales@ArborMove.com
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This document is not intended to be legal advice and doesn’t serve to establish an attorney-client relationship between the reader and the author of this article. It is recommended that all parties seeking real estate advice consult with an attorney licensed to practice law within their state’s borders before taking action on any real estate transaction.
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