Consider Strategically Crafting An Escalation Clause Based On Your Other Contingencies


Consider Strategically Crafting An Escalation Clause Based On Your Other Contingencies
By Scott Rogers • June 9, 2021
So, let's consider this scenario... Offer #1 = $255K Offer #2 = $250K with an escalation clause to increase $1K above all other offers up to $270K Based on this information, buyer #2 wins, right? Their offer is effectively $256K and the first offer is $255K, so the seller would definitely pick offer #2, right? Well -- maybe. What if we had these additional details... Offer #1 = $255K, contingent on the buyer financing 80% of the purchase price, and no home inspection Offer #2 = $250K with an escalation clause to increase $1K above all other offers up to $270K, contingent on the buyer financing 97% of the purchase price and contingent on a home inspection and contingent on the property appraising at/above the contract price I suspect you may see where I'm going with this. In this situation, why would a seller pick offer #2, just for a sales price that is $1K higher, to then voluntarily be subjecting themselves to possible further negotiations related to the home inspection, the appraised value, and with a buyer who would appear to be less financially qualified (3% down payment instead of 20% down payment) than the first buyer? Most sellers would likely pick Offer #1 in this more nuanced scenario. So -- extrapolating from this specific "what if" -- if your offer will include contingencies or terms that are bound to be less favorable to the seller, you may want to consider being willing to pay a higher price compared to other offers. Here's how that might look... Offer #1 = $255K, contingent on the buyer financing 80% of the purchase price, and no home inspection Offer #2 = $250K with an escalation clause to increase $5K above all other offers up to $270K, contingent on the buyer financing 97% of the purchase price and contingent on a home inspection and contingent on the property appraising at/above the contract price Now, the seller has an offer of $255K and an offer of $260K. The higher offer still has more contingencies to work through -- but perhaps they are more willing to do so given that the sales price would be $5K higher in this scenario instead of just $1K higher. So, as you consider that "differential" that you put in your escalation clause -- consider the other terms and contingencies you are including and how they might compare to other competing offers -- and consider adjust that differential accordingly. P.S. No, I'm not an attorney. I'm not offering legal advise. I'm just a Realtor pondering negotiating strategies aloud. Consult with your Realtor about how to draft the most competitive offer on a property based on your situation and that individual property. :-) Receive Updates by Email Recent Articles: There Are Plenty Of Types Of Houses That Exist That Just Are Not Available To Purchase Home Sales By Price Range In The City Of Harrisonburg Are You Compromising On Aspects Of Your Next Home That You Can Or Cannot Change Later? How Much Slower Are The Winter Months In Our Local Housing Market? Rockingham County and New Home Sales Drive Surge in Area Housing Market Find The Balance Between Optimistic And Realistic Home Pricing Room Size Is Difficult To Understand Solely From Real Estate Photos How Much Would You Value Not Having To Prepare Your Home For Showings? One Out Of Four Homes Is Taking Longer Than A Month To Sell Consider The Cost Of Your Planned Renovations When Planning Your Offer
Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com
Based on information from the Harrisonburg-Rockingham Association of REALTORS® or its MLS, for the period Jan 1, 2000 through Nov 22, 2024 (unless otherwise noted).
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