Escalation clauses have become the norm in the Seattle area real estate market, especially in the most desirable neighborhoods. They are are a boon for sellers but can be a bane for buyers. While the offer price is never the only criterion in evaluating an offer, it is the most important. With multiple offers, it is helpful to create a spreadsheet to compare all aspects of each offer.
What is an Escalation Clause?
An escalation clause is an addendum to the Purchase and Sale agreement. The escalation addendum states that the buyer offers an incremental amount over the next highest offer up to a maximum purchase price. For example, a buyer offers to pay $3,000 over the next highest offer up to a maximum price of $550,000. Obviously, the maximum price of the escalation clause is higher than the listing price and higher than the offer price stated in the Purchase and Sale Agreement. Below is a real world example. Don’t hesitate to call me with your questions or set up a call at your convenience.
Round 1: Multiple Offers without Escalation Clauses.
For the sake of privacy, the names of the buyers and the dollar amounts have been changed. There were four offers and two had escalation clauses. But what if there had been no escalation clauses? What would have been the outcome? The listing price of the home was $518,000. [Read more…]