If Your Downpayment Is Small, Your Escalation Clause Differential Should Likely Be Large


If Your Downpayment Is Small, Your Escalation Clause Differential Should Likely Be Large
By Scott Rogers • April 19, 2022
Consider these scenarios of multiple offers on a house listed for $400,000... Two offers... Offer of $405,000 contingent on financing 70% of the purchase price. Offer of $400,000 contingent on financing 95% financing, with an escalation clause to increase the offer to be $1,000 higher than other offers up to a maximum offer of $435,000. This offer becomes an offer of $406,000 based on the escalation clause and the existence of the first offer. In this scenario, a seller will almost always pick the first offer. Most sellers would be just fine missing out on that final $1,000 being offered by the second buyers because they would rather work with a buyer with a larger downpayment that would appear to be more financially capable, more readily able to cure any appraisal shortages, etc. Interestingly, the second buyer seemed happy to pay $435,000 for the house, but is not likely to get the house because the differential of their escalation clause was only $1,000. Now, then, here is an alternative scenario that the second buyer could have created which might have changed the thought process of the seller... Offer of $405,000 contingent on financing 70% of the purchase price. Offer of $400,000 contingent on financing 95% financing, with an escalation clause to increase the offer to be $10,000 higher than other offers up to a maximum offer of $435,000. This offer becomes an offer of $415,000 based on the escalation clause and the existence of the first offer. In this version of the offer situation, the second buyer will at least (likely) get the seller to slow down and give their offer some serious thought. Even if the seller doesn't like the 95% financing situation, and the possible ramifications of that high loan-to-value ratio, to ignore that second offer is potentially leaving $10,000 on the table. So... if you have a small downpayment, you may want to consider a larger differential in your escalation clause... otherwise, you shouldn't be surprised if your offer is not seriously considered by a home seller with multiple strong offers. 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 21, 2024 (unless otherwise noted).
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