A brief rundown of what an escalation clause entails.

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What is an escalation clause? Should you use one? Escalation clauses have become commonplace in our current real estate market because you need one to be able to compete against other buyers in many situations. An escalation clause increases your offer automatically to avoid being outbid which makes you much more competitive.

There are three basic components of an escalation clause:

1. Proof of other bona fide offers. You don’t want to submit an escalation clause unless there are other genuine offers on the table.

2. The amount by which you’re willing to outbid your competitors. The clause should state how much you’re willing to raise your offer in increments. This could be $5,000 or $10,000, for example.

3. How high you’re willing to go on the purchase price. This is a cap amount you’re not willing to pay over. For example, it may say you’re unwilling to pay over $800,000 for the property.

”Escalation clauses have become commonplace.”

The positive aspects of an escalation clause are fairly clear. It demonstrates to a seller that you’re a serious buyer, gives you an edge over the competition, and will likely help you win the property. This clause also cuts out the need for price negotiations back and forth. The downside is that you’ve shown your hand upfront, and the seller knows how much you’re ultimately willing to pay. However, in our market that’s escalating so quickly right now, placing all your cards on the table doesn’t matter much; the goal is to win the property.

You need an expert real estate agent on your side to guide you through the process of composing an escalation clause. People have questions about escalation clauses all the time. If you have any or know someone who does, call or email me. I’m always here to help.