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 $630,0000....you 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