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An escalation clause is only triggered if there are competing offers, so you should not include an escalation clause in your purchase offer unless you and your real estate agent are confident that there will be multiple offers. The seller is not accepting escalation clauses.
Using an escalation clause might give you an edge; or, it might just be table stakes. On the other hand, an escalation clause would be a bad idea if you can't cover the difference between your pre-qualified loan amount and the escalation price.
An escalation clause, or escalator, is a section in a real estate contract that states that a prospective buyer is willing to raise their offer on a home should the seller receive a higher competing offer.
This is the amount by which your purchase price will increase above the competing offers. For example, if your escalation amount is $3,000 and the competing offer was $300,000, the escalation clause would automatically increase your offer to $303,000.
Here is an example of a real estate escalation clause. Buyer offers to pay $ for the home, but if the seller receives a bona fide offer that is higher, buyer will increase the price to $ above the amount of the other offer. This is a very strong option for writing winning offers!
How to Structure Your Escalation ClauseThe original purchase price offer.The increments by which the offer escalates (example: $5,000)The maximum purchase price - keep in mind your pre-approval letter, because the maximum price should not exceed this (or be prepared to make up the difference in cash)
Escalation Clause Example For example, you may offer $300,000 on a home with an escalation clause stating that you will outbid other offers by $5,000 up to $321,000. So if another buyer makes an offer of $305,000, your escalation clause means that you will pay $310,000 for the home.
While an escalation clause can make an offer more attractive, it also shows the seller exactly how much you're willing to pay. You may come out with a better deal if you negotiate with the seller. The escalation clause also doesn't account for other points of negotiation.
Your real estate escalation clause should indicate:The original purchase price offer.The increments by which the offer escalates (example: $5,000)The maximum purchase price - keep in mind your pre-approval letter, because the maximum price should not exceed this (or be prepared to make up the difference in cash)
For buyers, escalation clauses are a useful tool to make their offer stand out in a competitive market. For sellers, they can be a great way to lock in a higher sale price.