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  • Writer's pictureJesse Ledbetter

Escalation Clauses... Use them!

In this hot market, homes often sell above list price, and above fair market value, but that doesn't mean you have to assume that. Tell your agent (your agent should really be telling you) that you want an "escalation clause."

I am disturbed by the number of contracts that come across my desk (in an average week I may review 50 contracts) that have a "naked" offer above the list price. Sometimes they are reasonable offers, sometimes they are the only offer on the home and the buyer has offered, with no competition, to pay more than the buyer asked.

An escalation clause keeps as much money in your pocket as possible by saying, "My initial offer is the amount you are asking (or lower if you wish) BUT IF there are other offers, I will outbid them by an amount up to my limit price."

Imagine the scenario where a listing is marketed at $350,000. The buyers agent says "It will never go for that, you need to offer at least $360,000.

  1. Scenario 1 - the buyer offers $360,000, and no other offers come in. The buyer overpaid by AT LEAST $10,000.

  2. Scenario 2 - the buyer offers $340,000 with an escalation up to $375,000 in $1,000 increments.

    1. If no other offers come in, the buyer saves $20,000

    2. If the agent is right, and bids come in, the buyer has a chance to buy at any level up to their limit.

If you think this never happens... well I have contracts on my desk right now that say otherwise. NEVER offer more money than the buyer wants blindly. Always protect your interests with an escalation clause.

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