Have you found yourself getting outbid on properties and losing properties in this highly competitive seller’s market? We have 10 strategies to help you acquire a property in a multiple offer situation. One of the most asked about strategies is called the Escalation Clause.
What is an Escalation Clause?
An Escalation clause is additional contract language used in a multiple offer situation, stating that you will pay “x” amount of dollars more than any other bonafide offer provided that the seller shows you proof of that offer.
Here is example contract language: In the event Sellers receive another competing offer(s) from a qualified Buyer with terms acceptable to the Seller, and which Seller would realize a higher net sale price than Buyer hereby increases their offer by the amount necessary to give the Seller a net sales price that is $__ above the net sales price in the competing offer, not to exceed a maximum contract price sales price of $__.
You would like to purchase a $500,000 property, we know that there are multiple offers in it, and the seller is calling for highest & best offers by a particular deadline. If the seller shows you proof of another contract equal in terms but at a higher purchase price, you may use the Escalation Clause and beat that offer by $5,000.
In the Escalation Clause strategy, you may use a ceiling or safety net not to exceed a certain amount, such as $550,000 in this example.
Therefore, your offer will be $500,000 with an escalator to beat another offer by $5,000 but not to exceed $550,000. If the next best offer was $520,000 in this example, you would be agreeing to pay $525,000.
There are potential cons to this strategy as well:
The seller can potentially use it against you. They could just not like or not understand the terms of the escalation clause. Or, they could use the safety net or ceiling against you. This happens when the seller just offers to close the deal with the ceiling price without showing other offers.
It can be very successful in getting your offer accepted.
This strategy can be used depending on the level of risk you are comfortable with getting your offer accepted. It is one of the aggressive strategies that we use and we have seen a lot of success in it. It might be one that you want to add to your tool belt that you can use in a multiple offer situation.