Escalation Clauses: The Good, the Bad, and the Ugly [VIDEO]

When you make an offer on a home, is it a good idea to add an escalation clause? Sometimes they work out but sometimes both the buyer and the seller get burned.

Welcome to another episode of “What’s Working Now!”

Sometimes, buyers will include escalation clauses when they make an offer. Today, I’ll go over the good, the bad, and the ugly when it comes to offers with an escalation clause.

An escalation clause is when the buyer says, “Mr. and Mrs. Seller, I will pay this amount more than any other buyer, but I won’t go higher than this amount.”

What’s the good thing about an escalation clause? As a seller, you may be able to get them up to that higher number.

What about the bad news?

Let’s say that a buyer offers $1.3 million and says that they will offer $7,000 more than any other buyer up to $1.5 million. Now, let’s say another buyer comes in and the price escalates to $1.45 million. You relay that information to the buyer with the escalation clause and the buyer may say, “Wow, I didn’t think anyone else would offer that much. Sorry, I’m out of here!”

The ugly is that you could end up with nothing.

So, what’s the solution?

As a buyer, you should write a contract without an escalation clause. If you want to buy a house and you are willing to pay a certain amount like $1.45 million, then write your offer for $1.45 million so the seller can sign off on it right away.

You should also work with a strong agent who will give you the right advice, tell you to get rid of the escalation clause, and help you make a good offer to get that house.

Thank you for watching “What’s Working Now!” In the next episode, I’ll go over a few solutions to common challenges in our current market.

In the meantime, please don’t hesitate to give me a call or send me an email with any questions that you might have. I look forward to hearing from you!