Here’s what you need to know about using an escalation clause.

What is an escalation clause? It’s crucial to know how the escalation clause works and that the real estate agent on the other side of the deal knows as well. We’ve run into that a bit, where the other agent didn’t quite understand. If it’s not presented well, it can work against you.

“If you’re committing to an escalation clause, you need to show proof of funds.”

An escalation clause is an agreement to pay a certain amount more than the highest offer the seller has received. When writing an offer for a home that’s likely to receive multiple offers, you can write into the offer that you’ll pay $1,000 over any other offer, for example. You can also add in a cap so that you aren’t agreeing to pay way over your budget. 

If you’re committing to an escalation clause, you need to show proof of funds, and you’re also committing to paying the appraisal gap. You’re probably going to end up paying well over appraised value and market value for that home. An escalation clause is essentially used to secure a property at all costs, and we’re seeing many of them in this market. However, an escalation clause does no good if other contingencies aren’t removed because your offer still won’t be the strongest, so keep that in mind.

If you have questions about escalation clauses or any other real estate matter, call or email us. We would love to help you.