You Might Not Want To Think About This Aspect Of Escalation Clauses. Sorry!?


You Might Not Want To Think About This Aspect Of Escalation Clauses. Sorry!?
By Scott Rogers • April 20, 2022
Escalation clauses are all the rage right now when would-be buyers are competing against multiple other offers on popular, well prepared, well priced, thoroughly marketed new listings. An escalation clause allows you to make an offer at one price, but have that offer price automatically increase to compete against other offers. Yesterday, I pointed out that when it comes to escalation clauses... If Your Downpayment Is Small, Your Escalation Clause Differential Should Likely Be Large Today, I'd like to point out that sometimes, your offer with an escalation clause might escalate based on a competing offer that might make you groan when you see it after your offer escalates. Here's the imagined scenario, on a house listed for $400,000... Your Offer = $405,000 contingent on financing 75% of the purchase price, escalating to be $5,000 above any other offer up to $460,000. Offer #2 = $400,000 contingent on financing 80% of the purchase price, escalating to be $1,000 above any other offer up to $410,000. No biggie here -- your offer escalates to $415,000 and that probably seems reasonable. Offer #3 = $400,000 contingent on financing 97% of the purchase price, contingent on a home inspection, contingent on the property appraising at or above the contract price, $500 deposit, contingent on the sale of a property that has not yet been listed for sale, from buyers who have not yet been prequalified, escalating to be $1,000 above any other offer up to $460,000. Oof. Offer #3 is not likely actually an offer that would be accepted by the seller... but it caused your offer to escalate all the way up to $460,000 -- which is $55K above your original offer, and $45K above how far it would have escalated based on Offer #2. Pointing this out is not a recommendation that you make your escalation clause super complicated, as that might overwhelm or turn off the seller... but it is important to realize that competing offers that are extremely weak in almost every way except price might cause your offer to escalate just as much or more as a very strong competing offer would. I suppose, at a minimum, in the situation above, your escalation clause could have at least stated that your offer wouldn't escalate if the competing offer had a home sale contingency? Receive Updates by Email Recent Articles: Buying A New Construction Townhouse Requires A Bit Of Planning Should We Call An Almost Bedroom A Bedroom? November Home Sales Surge with 12% Year Over Year Growth and 5% Increase in Median Price Interest Rates And Home Prices Affect Home Sales Trends, But Life Events Do As Well! In Which Room Or Rooms Do You Spend Most Of Your Time? An Early Look At November Home Sales! All The Right Spaces In All The Wrong Places Do Not Be Surprised If You Have Lots Of Showings Of Your Home. Do Not Be Surprised If You Do Not Have Very Many Offers. How Many Homes Are Going Under Contract Within Three Days, These Days? The Growing Impact Of New Home Sales In Harrisonburg, Rockingham County
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 Dec 18, 2024 (unless otherwise noted).
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