Buying a House with an Escalation Clause

The Escalation Clause could be interpreted as real estate’s get out of jail free card and advance your token to “GO” or it could also be “game over”. For this example, an escalation clause is used by real estate agents who represent a home buyer in a multiple offer situation. In a Seller’s market the asking price is only a starting point, so an agent will present an offer with a price and the additional terms stating that they will pay “X” amount over a certain price.

real estate escalation clause
Your escalation clause may backfire

Say a property is listed at $500,000. You have made several offers and have decided this one will not get away. Your agent instructs you to pay $525,000, but adds an additional line that says you will pay $2000 over the highest price up to $575,000, thinking that a new escrow is just a signature away. This isn’t the time to try and be clever, just SHOW ME DA MONEY.

What are your thoughts? Does this sound reasonable and something you might consider?

Escalation Backfire

If I am the listing agent and your offer is accompanied by an escalation clause, you may not get the attention you are looking for. In a multiple offer situation, the Seller is looking for someone who shows a real desire to own the house, not a flake that may become overwhelmed with buyers remorse and back out. Not someone who believes they have a trump card to play, with only a mediocre offer.

An escalation clause tells me you don’t have that sincere desire to buy the house, but you are attempting to reserve your right to make a decision at a later point and decide then if the house is really worth that much to you. When the listing agent begins to doubt your sincerity, you now have two chances to be chosen as the buyer. Say hello to Slim & None.

Buying a House is Just Like a Job Interview

A buyer who has found themselves in the unfortunate position of bidding and losing has now become seasoned. They now realize if they are to be considered for round 2 counter-offers, they have had to make one of the top offers. Forget what the Webster dictionary says, here is the definition “Top” – a higher price, a larger down payment, the elimination of possible contingencies and possibly a generous short term rent back for the Seller.
Otherwise be prepared to look at the homes that have been on the market for a longer amount of time. These are the homes that nobody else has wanted, so there is no current demand, no bidding war.

“Think of a counter offer as a job interview, only the best and brightest get selected”.

So the question becomes, “What makes you so special”, and what is it about your offer that is above the rest and will secure that job, house for you?

We’ve all seen the National Geographic video where the lion hunts down the water buffalo and proceeds with dinner. The buffalo has no chance. The lion is stronger (higher price), faster (bigger down payment), and hungry (eliminated the contingency of going hungry)

It’s the Law of Nature in a residential neighborhood, only the strong survive. When you write your next offer, will you be the lion or the water buffalo?