- What is an escalation clause, and how can it help me purchase a home?
- Let’s imagine that you’ve found a wonderful house that you simply “must have.” You are prepared to pay the full asking price, but you worry that other shoppers may jump in behind you with even higher offers. By inserting an escalation clause in your written offer, you promise the seller that you will top any other potential bid by a thousand dollars(this is just an example, you could specify any amount) up to a maximum amount which you have specified.
Here’s an example of how the clause can work to your advantage during times when the housing market is competitive:
Your dream house has a listed price of $180,000. You offer exactly that amount, but insert in your contract an escalation clause capped at $185,000. Hours after you submit your offer, another would-be buyer offers $181,000. Normally, you would lose to the other person. But, thanks to your escalation clause, your offer jumps automatically to $182,000, and you win the house. Note that you paid just $1,000 more than the other bid. Note also that the escalation clause afforded you the same competitive advantage as a $185,000 offer, but that you didn’t have to bid or spend $185,000. Most importantly, you were able to purchase the home of your dreams despite competition from another buyer.
Do you have questions about purchasing or selling a home? Feel free to ask the friendly and knowledgeable professionals at the Maryland and Delaware Group of Long & Foster, the Eastern Shore’s most successful real estate team.
The Maryland and Delaware Group of Long & Foster
107 Williamsport Circle
Salisbury, MD 21804