What is an escalation clause?

You’ve been hearing it for a few months now. 

Inventory is LOW. 

When there are more buyers in the market looking than there are properties to buy, it results in multiple offer situations. Knowing multiple offers may occur can make some buyers nervous – especially when they find a property they’ve fallen in love with. This is when an escalation clause comes in use. 

What is an escalation clause?

An escalation clause is a clause in the written contract between a buyer and a seller. The buyer’s agent adds language into the contract to ensure you are the highest bidder, in the case of multiple offers. 

How does it work?

Before sending in your offer, you will need to decide two things with your agent: the number you want to present as your first bid, and your cap – or the highest possible price you 

are willing (and financially able) to pay for the property. 

The agent will then present the offer, and clarify that you are willing to go above other offers in increments, up to your cap. Here’s an example:

Buyer agrees to pay $340,000 for the property. In the event the seller receives a bona fide offer that exceeds the initial one, buyer agrees to pay $1,000 more than the highest offer received by the seller, not to exceed a sales price of $352,000. 

Not only does this automatically put your offer above others, but it keeps you safe with a cap. Knowing your highest and best offer is available makes it easier to walk away should someone outbid you. 

Are you ready to buy this year? 

Find a Buyer’s Agent!