Strategies for Winning: Escalation Clauses


 Strategies for Winning: Escalation Clauses


In the upside down world of competitive real estate, both buyers and their agents inevitably need to consider numerous strategies when submitting an offer for a home. And since we are in an extended sellers market with low inventory, it’s important to consider using every tool in your toolbox when needed. 


If you’re thinking about buying a home in Washington, our state offers the ability for buyers to escalate their offer over another buyers offer. Not every state allows it, so I’ll go into the finer details of its used and why it’s often a game changer for many buyers. 


Countless times throughout my real estate career, I have sat with buyers after looking at a home they’re considering an offer for. There are strategies beyond just offering a high number. Sometimes there are multiple buyers submitting offers for the same home, and you want to know what it takes to be the winning offer, and escalations play a significant role in that strategy. 


You’ll ask, “Erik, how much should we offer?”  A good agent will ask you multiple questions upon hearing that ask, and if they don’t, they’re not doing their job. We are not in a fever pitch market of the pandemic, but we are still seeing homes sell for over asking price. As a buyer looking to secure the winning offer, you should offer the highest amount you feel comfortable offering, and if you still don’t get the home, you should be okay with it. And maybe that includes an escalation clause. 


As escalation clause (22AD) is an addendum to the purchase and sale agreement, committing to offering a maximum price, over and above the highest offer. If someone has already offered more that you’re highest escalated price, you will likely not be the chosen offer. 


Often the next question is - “how much?”  With an escalation, I’ll ask you, what is your maximum price you want to pay, and in what increment over the highest offer would you like to escalate to?  Meaning, if the home is priced at $500,000 and you offer to pay a maximum of $525,000, that doesn’t mean you automatically pay $525,000. The escalation includes language that escalates the offer in increments of your choice, often $2,500 or $5,000 increments. So if the sellers highest offer they received was $515,000, and you offered to pay up to $525,000 in increments of $5,000 over the highest offer, you would pay $520,000, which is $5,000 over the highest offer. 


Also, some sellers don’t want escalation clauses and they’ll disclose that upfront. They simply want highest and best clean offers, and that’s okay too. Using an escalation may also mean you’re paying more than the appraised value of the home. You will need to consider that, and how long you plan to live in the home. If you suddenly need to turn around and sell within 12-18 months, you don’t want to be upside down, owing more than you intended. 


Lastly, it’s important to note, it’s unethical for listing agents to say they have other offers when they don’t. Fines and suspensions for unethical behavior are often hefty, so it’s important for everyone to uphold the same set of rules when buying and selling. If you are the winning offer, and a competing offer did trigger your escalation, the listing agent must present that competing offer to you, for proof of escalation. 


If you have any questions about real estate, offer strategies or are thinking about entering the market, please text or call (206) 643-8845 or register with me at https://erikmolzen.bhhsnw.com/ 


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