Broker Owner
Grenier Real Estate
Here in the Colorado real estate market, we are still in a pretty strong Seller's Market. A Seller's Market means there's more Buyers than Sellers. In certain price points and locations, buyers may be competing against multiple buyers and may encounter "bidding wars", and it could be difficult to get an offer accepted.
This is where a good Buyer's Agent will guide the buyer on how to make a good strong offer that's likely to get accepted. One factor that may help in getting your offer accepted is adding an "escalation clause" to your offer.
What is an escalation clause?
An escalation clause is added to a real estate contract, that lets a home buyer say: "I will pay $350K for this home, but if the seller receives a higher offer, I'm willing to increase my offer by $X price, up to a max of $XYZ."
When should we use an escalation clause?
I only recommend an escalation clause when we know for sure there are other offers on the table, and if the seller and listing agent are willing to consider them.
Usually a listing agent is forthcoming with that information and may say "we have 2 offers and expecting one more tonight".
Note, that IF we do implement an escalation clause, I will ALWAYS ask for proof of other offers.
If there aren't any other offers, then it's best to just make your strongest offer. (Because an escalation clause in that scenario would tip your hand to the seller & listing agent how high you'd be willing to go).
Keep in mind that a strong offer isn't just about price. (that's a whole other blog post).
Will the seller accept an escalation clause?
Some Colorado real estate sellers and/or their listing agents may simply state that they will not accept an offer with an escalation clause. They would prefer that every buyer submits exactly what they're willing to pay for the home.
Sellers and their agents like this because it encourages buyers to put their "best foot forward" and give the seller their "best" offer up front. It also streamlines the contract paperwork and the decision-making process for the sellers & listing agent.
Other sellers and agents are fine with escalation clauses and sometimes it's the key to getting your offer accepted.
Final thoughts:
Buyers need to decide how badly they want their offer accepted and discuss with their agent how high they are willing to go in order to get it. Under the right circumstances, an escalation clause may be the trick to getting your offer accepted.