What is an Escalation Clause in Real Estate? In this video, Huntington Beach Realtor, Jeb Smith of Coldwell Banker Residential Brokerage gives a real life example of using an Escalation Clause when writing a contract for a Buyer and how it can benefit you without overpaying for a property?
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Escalation Clause Definition
An escalation clause is a real estate contract, sometimes called an escalator, that lets a home buyer say “I will pay x price for this home, but if the seller receives another offer that’s higher than mine, I’m willing to increase my offer to y price.”
Example of an Escalation Clause in Real Estate
Let’s say that I put in an offer on a home for a Buyer at $600,000 with an escalation clause that says my buyer is willing to pay $1000 more than the highest offer. That would mean that if another buyer wrote an offer for $610,000 then my offer would now stand at $611,000 in this example. This would allow my buyer to always be the highest offer assuming the other side doesn’t do the same thing. I usually recommend that a Buyer put a cap on their price to read something like “buyer is willing to pay $1000 more than the highest offer up to $615,000”, that way you put a limit on the number you are willing to go up to and not get carried away. I also suggest that you put something in the escalation clause that states the listing agent must provide you with proof of the other offer.
Benefits of using an Escalation Clause in Real Estate
The biggest benefit of using an escalation clause is so that your offer will always be the highest but it also protects you from just throwing out an arbitrary price to start not knowing if there will actually be any other offers on the table. You would normally only use an escalation clause if you knew there would be multiple offers so that you have a leg up over your competition.
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Other videos you might find helpful:
How much does it cost to sell a home? – https://youtu.be/v6PR1gIvIA8
How Much Deposit Do I Need To Buy a House? https://youtu.be/6OUqU919cpo
What does contingent mean in Real Estate?: https://youtu.be/_yq2tlynSzA
If you would like more specific information about Escalation Clauses in Real Estate or any other Real Estate Tips, please contact me directly at 714.376.2711 or firstname.lastname@example.org.