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Buying Strategy: Escalation Clause

  • 3 min read
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In a market where there are multiple offers on almost every home for sale, buyers are having to come up with some crafty strategies in order to get the home, and even then, it is proving not enough. In multiple offer situations, sellers have their pick of the buyer pool when it comes to selling their homes and you never know if they value time, money, or hassle-free sale the most.

So, what happens when you include an escalation clause with your offer?

An escalation clause is a provision added to the offer that is drafted by an attorney (specifically for offers in North Carolina, other states may vary) that usually states that the buyer will offer an amount over the highest competing offer up to a predetermined amount.  

The possible issue with this is that it puts your “highest” amount in front of the sellers from the beginning and could compromise any bargaining position you might have otherwise.  If the sellers know you will go up to that amount, what would keep them from countering with you to your highest amount? Maybe that doesn’t matter. You were willing to pay it already, right?

including a ceiling may compromise
their bargaining position because the seller will know that they
are willing to pay that amount for the property.

By utilizing an escalation clause, you could appear weaker and only willing to pay if you “have to”, not showing confidence in your offer. There is strength in sticking to a number but there is always a risk that they’ll use your offer to bump up another escalation clause. Are you confused yet?

Sellers can take so much into account when comparing offers. They receive offers with sappy letters, offers of cash, offers to close quickly, and offers with zero contingencies. It all stacks up but sometimes the most complete offer with the most insight as to the seller’s desires can stand out above the rest. Your agent will be very important for this part.

Is an escalation clause smart for your home buying strategy?

You can always try to pay more and decide to utilize an escalation clause, but in a hot seller’s market, you might need to think about it a bit differently to make your offer stand out among many.  You’ll never know what a seller is looking for but knowing your priority and tolerances upfront is very important, and you’ll be able to make some strategic moves to win the home. Yes, that can include utilizing an escalation clause.

We are big fans of strategies and thinking about the picture as a whole.  A savvy agent will be able to help you navigate a multiple offer situation but every experience is different. Asking the right questions and sourcing information that might help a buyer determine what might be the “best offer” for a specific seller is key. Surprise, it might not mean a higher price!  To some sellers, more flexibility in time or removing contingencies could make your offer more appealing.

We are licensed and located in North Carolina. We are only referring to how they can be used in North Carolina; other states may vary. Consult an attorney to learn more.