Should you use an escalation clause in a multiple offer situation?
March 29, 2017
Author: Curtis Bullock
Using an escalation clause can certainly work to secure a contract in a tight seller’s market. But if you and your buyer choose to use an escalation clause, keep these 7 things in mind:
1) Escalation clauses usually involve placing a cap or highest price your buyer will go. Do you want to give the seller that information?
2) Make sure there will actually be multiple offers before using an escalation clause. If there isn’t, this could put the buyer in an awkward situation especially if they have included a cap.
3) Will the buyer actually qualify for the loan amount if he/she has to escalate their offer? Will the property appraise for the escalated amount?
4) Will the seller feel like you are low balling them to begin with?
5) Will the buyer with the escalator get proof of what the next highest offer actually was? You want to make sure the seller is being honest that there is in fact another offer on the property.
(*Side bar – What if the seller’s agent also represents one of the buyers who has made an offer as a limited agent? May the seller’s agent/limited agent provide a copy of their own buyer’s offer to the buyer with the escalation clause as proof? I wouldn’t recommend doing that without having your buyer client’s consent as it may violate the duty of confidentiality you owe them.)
6) Price isn’t the only important thing to the seller. Is the escalation clause trying to make up for weaker terms (i.e., low earnest money, contingencies, etc)?
7) Does the listing agent and or seller even like escalation clauses or do they not even want to be bothered with them? I’ve talked with some brokers who will advise their clients against accepting an offer with an escalator. On the other hand, some seller’s will like escalation clauses.
See article below with more info about escalation clauses from realtor.com.