Finding A Great Real Estate Agent

Posted on: 28 February 2017

There are time periods when prices for homes for sale are up high and homes are in great demand. During these times, it is not unlikely for a house to sell for an amount that is over the asking price. When this is happening in the housing market, it may be hard to find a house to buy that other buyers are not competing for, and this may result in you having to use an escalation clause on your purchase offer. Here are a few important details to know about escalation clauses.

What it is

An escalation clause, also referred to as an escalator, is a clause added to a purchase offer on a house that automatically increases the offer amount when other offers are present. When you add an escalation clause, you must include three main things, which are:

1. The initial offer you are making on the house.
2. The increments as to how much higher than other offers you will go.
3. The maximum amount you are willing to pay for the house.

When you will need one

The only time you would really need to use an escalation clause on a purchase offer is when there are numerous people interested in the house. When many people want the same house, and when the housing market is in high demand, it can result in a bidding war. A bidding war typically causes the price of a house to well exceed the asking price, and using an escalation clause is the easiest way to keep your interest in buying the house.

Without an escalation clause, you would have to write up a new offer whenever another person makes an offer on the house you are trying to buy. This would be very time-consuming, and it could also result in someone else ending up with the house you really want.

How to use one

If you decide to use an escalation clause, you must make some decisions. Assume you are interested in a house that is listed for $200,000. You could make an offer on the house for $195,000. The escalation clause could state that you are willing to offer $2,000 more than any other offer the seller receives, but that you will only be willing to go up to $230,000 in all. If someone else offers $205,000 for the house, your clause would automatically bump your offer up to $207,000.

If you are interested in learning more about how these work, contact a real estate agent in your neighborhood.