A New Home for a New Year

Posted on: 11 January 2017

Multiple bids on a home can kill your chances of an offer being accepted. Fortunately for you, there is a way that you could potentially increase the likelihood that your offer will win out over others. An escalation clause is commonly used in real estate to help buyers. If you are buying a home, here is what you need to know about an escalation clause.  

What Is It?

An escalation clause is your chance to squeeze out the competition for a home in which you are interested. When you submit an offer with an escalation clause, you are agreeing to go above the highest bid by a certain amount of dollars.  

For instance, if the highest bid submitted to the seller is for $100,000, your offer could include a clause that automatically states you are willing to pay $100 above the highest bid. At that point, you would be considered the highest bidder and win the home.  

When creating an escalation clause, you can set the number of dollars you are willing to go over the bid. You can also set the highest amount you are willing to pay. For instance, if the home is $150,000, you could set the amount to pay over at $1,000 and place a maximum limit at $200,000.  

Are There Drawbacks to the Clause?

Even though an escalation clause increases the likelihood that you will win the home you want, there are some drawbacks you should factor into your decision on whether or not to use a clause. One of the biggest drawbacks is that some sellers will not accept one. By refusing to accept the clause, sellers are leaving themselves open to accepting bids that could exceed your highest limit.  

There is also no guarantee that you will get the home. If an offer comes in to the seller that is higher than your maximum limit, you lose. As a result, you could be pushed to deciding whether or not you want to up your bid or walk away from the home altogether.  

One other possible outcome is that the seller might not be 100 percent truthful about the offers he or she has received and could claim to have received a higher offer in order to invoke your escalation clause. In most instances, the seller and his or her realtor are honest, but you have to be prepared in case you are dealing with a seller who is not.  

Whether or not an escalation clause is the right course of action depends on various circumstances. Talk to a real-estate agent to learn whether using one is the smart move for your bid. You can find a real-estate agent by visiting sites such as http://alanjsmith.com.