What’s An Escalation Clause?
The greater Kansas City metro is still a seller’s market. Currently, it’s still very common for sellers to receive multiple offers on their house. When that happens, it’s common to see offers that include an Escalation Clause, also known as an Escalatory Addendum. Simply put, an escalation clause states a buyer is willing to increase their initial offer by a specified amount above any other offer (usually capped at a certain amount).
Example
Offer #1
Purchase price $325k. Escalation clause: In the event of multiple offers, buyer agrees to increase their offer to $1k above any other offers up to $351k.*
Offer #2
Purchase price $340k. No escalation clause.
Why Are Escalation Clauses Important?
Whether you’re a buyer or seller, knowing how these clauses function is very important.
In the above example, the escalation clause included in Offer #1 would increase the offer to $341k, effectively beating out Offer #2.
However, it’s not that simple.
Sellers are not obligated to accept an offer the way it’s written. That’s important because some sellers perceive these clauses as “sneaky” or as an unfair way for a buyer to offer less while still having the chance to beat out higher offers. On the other hand, when a buyer uses an clause like this, the seller already knows the buyer is likely willing to pay more. This can hurt the buyer’s negotiating position.
Other times, more than one offer includes an escalation clause, which can be confusing to sellers.
These are all things to consider when thinking about writing or accepting an offer with an escalation clause.
Any questions about this or other things we’re seeing in this market? I’d love to help! Let’s chat!
*note: this verbiage is for illustrative purpose and is not advice on how to write or negotiate an actual offer
Thinking of buying, selling or investing in real estate? Feel free to reach me below.
Justin Rollheiser – REALTOR®
Keller Williams Realty | Diamond Partners, Inc.
13671 S Mur-Len Rd | Olathe, KS 66062
Mobile 913-800-7653
Office 913-322-5878
Comments or Questions?