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  • Writer's pictureChris

Well...That Escalated Quickly! Talking About Escalation Clauses!

We all know Ron Burgundy's famous line in Anchorman, and it sure sums up the current sellers market! But when placing an offer in on a house, consider using an Escalation Clause. Not sure what one is? Well howdy, you came to the right place!

Think of an escalation clause as a proxy bid on ebay. You really want to buy an engine for your hot rod (ok, maybe I speak from experience), and although you are willing to pay $1500, the current bid is now only $800. So, you enter your high bid, and it automatically raises your bid until you hit your max.

That's exactly what the escalation clause does. You write your offer like a standard offer, but include an escalation clause stating what your highest figure is, and what your increments will be. So, lets say you're in the mix for a $600,000 listing. You really, really don't want to lose out, and are willing to head up to $640,000. Now you also don't want to come out and bid $640,000 if you think the nearest offer may be near list.

So, let's say you set your increments to $2500....and the nearest bid behind you is $630, would be the highest bid at $632,500. Saving yourself $7,500!

Sometimes in highest and best situations, not everyone will accept an escalation clause, so it's worth asking the listing agent ahead of time. But if they will, it's a great tool to use!

We just recently won a condo in Neptune for our clients, and in that scenario we were not even the highest bid. We did however, have a sturdy enough price and terms that beat the others.

Two things to remember: Always, and I mean ALWAYS ask for a copy of the next highest contract, to verify that you are beating a bonafide offer, not negotiating with yourself. Most times agents have no issue with this, and may simply black out the buyers names. Also, if you are not including a separate addendum (and even if you are) it's good to include the terms of the escalation clause in paragraph #43 of the contract under "Additional Contractual Provisions".

Until next week,

Chris & Nikki

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