Buying a Better Home for a Lower Price
When a home buyer is willing to pay more for a home, but prefers to offer less without the risk of losing the home to other offering buyers, an escalation clause is just the ticket. Getting a dream home for a lower price requires advanced strategies to increase the buyer’s chance of getting the property, while saving as much money as possible.
Escalation Clause
Home buyers often prefer to start looking first at the lower priced homes because they want to see the best possible deals. Buyers want a good deal, so they will check out the bargains to see if they’re attractive, and they can always go see higher price properties, and offer more later if necessary. Buyers can sometimes find money to go up in price if the cheaper properties are too much of a compromise. But they never want to waste money by offering too much. #escalationclause #millsact | Blog Video
When a buyer finds a property they like, additional items sometimes included by more advanced buyer’s agents in the offer are: Letter to seller (often called a Love Letter), letter from a reference, escalation clause (based on the buyer’s agent conversation with the listing agent), appraisal clause, inspection (advanced agents will make sure it is focused on safety and health), post occupancy, also based on a conversation with the agent.
The escalation clause is often used in today’s market because the good deals go very quickly, often with many competing offers from other buyers. This is especially true in the safer, suburban neighborhoods.
Here’s an example of what an escalation clause may look like:
Purchase price to be $400,000, unless the seller receives a higher offer from another buyer; in which case, this offer shall automatically escalate to $2,000 above the other buyer’s offer, to a maximum of $500,000. If the seller accepts the escalated offer, the seller shall provide proof the higher offer from the other buyer.
A more comprehensive example might look like this:
During the period that the initial offer remains open, should the Seller receive an executed written offer from another Buyer (“competing offer”) that is higher than the initial offer, Buyer hereby agrees to escalate his offer by increments of $ 1,500 until such time as Buyer’s offer first exceeds the then-existing competing offer. Buyer’s offer shall not escalate unless and until Seller has received a competing offer that exceeds Buyer’s then-existing offer.
Buyer’s offer shall not escalate beyond a total purchase price of $500,000. Seller agrees that each escalation pursuant to this Addendum shall be deemed a valid offer to purchase the property.
Each time there is an escalation pursuant to this Addendum, the Listing Agent must notify the Buyer’s Agent within one (1) hour of each escalation. If Buyer and Seller agree on a total purchase price pursuant to this Addendum, they agree to execute a Contract at such price, with all other terms of the initial offer remaining the same.
Buyer shall have the right to inspect complete copies of all written competing offers received by Seller pursuant to which there has been an escalation of Buyer’s offer.
Buyers want to offer the lowest amount that they can, and sellers want the most amount they can get; but in a competitive market where there may be multiple offers, buyers may lose out of the home they want if they are outbid by another buyer.
The option sometimes used in today’s hot markets is the escalator clause of a real estate contract. An escalation clause states how much the offer will go automatically above the highest offer received by the seller from other buyers. It also states a ceiling price that it will not go over. Besides being a faster ways to negotiate, the escalation clause reduces the chance that a buyer will lose out to a competing higher offer from another eager buyer.
Before using an escalation clause, the buyer’s agent should ask the listing agent if multiple offers have been received, or if multiple offers are likely to be received before the seller choses whom to sell to.
Also, the buyer’s agent must be able to confirm and validate any competitive bids that are received. A down side is that, by including an escalation clause with an offer, the buyer will show their hand as to how much the buyer is willing to pay. Some sellers may thus raise their expectations of how much they demand for the property.
A few sellers do not like escalator clauses, and may reject them. They would rather have a potential buyer offer their highest and best offer from the beginning.
In addition to powerful tactics in a purchase offer, the buyer’s agent also matters: Advanced buyers agents know that the listing agent would like to know why it is an advantage to work with the buyer’s agent, such as years in the area. Buyer’s agent may include in the offer reasons why the buyer’s agent will be extra likely to help get the transaction done successfully.
