What is an escalation clause?

Due to the competitive real estate market, agents have been coming up with creative ways to compete with other offers. One of the tools we use is called an “escalation clause” or an ” acceleration clause, depending upon where you live.

Let’s say the house you want is listed at $150,000. Your agent tells you that she talked to the listing agent and there are currently four other offers. Highest and best is due tomorrow at 6 pm and she needs to know what you want to make as your highest offer. You tell her that you love the house, don’t want to lose it,  and will pay $175,000 for it.  Instead of going in with your top dollar, you can start with a minimum amount. In this scenario, I’d start with$155,000 as my base point and then escalate $1,000 over highest competing offer up to the maximum of $175,000. If your competitor only comes in at $165,000 as there highest offer, you get it at $166,000 and get to keep that extra $9,000.

If you’re looking at higher price point homes, you may want to escalate by $2,000 or even $5,000 to get the house.

Escalation clauses are a great tool to come in strong and win the house without overpaying.