An escalation clause can be the ace in your pocket that helps you win a bid on a dream home. But they’re nuanced and can be a bit controversial.
By Brittany Anas | January 15, 2021
“I often compare escalation clauses to eBay rules: they risk showing your hand a bit and give listing agents an opportunity to ‘fish’ with your offer to try to bid others higher, but in certain cases they also allow buyers to get to best and final while mitigating their risk of overpaying,” says Kate Ziegler, a realtor with Arborview Realty in Boston and with Coldwell Banker Lifestyles in New London, N.H., who has used the clauses to help her clients win bids.
Escalation clauses might make sense for buyers who don’t want to risk appraisal issues by overbidding too much, says Ziegler, who offers a free class for first-time buyers. (This is because if a house doesn’t appraise for the selling price, a deal could be derailed.) For her buyer clients, Ziegler recommends escalation clauses in cases where the market may be jumping ahead of recent comparable sales.
“It allows us to compete, while ensuring that we can back up the winning purchase price, with verified competing offers in-hand, if there is any concern with the lender’s appraisal,” she says.
Don’t use an escalation clause if you’re about to bust your budget: an escalation clause is advised only if you have some wiggle room with your budget. Buyers shouldn’t use one if they’re already at the very top of their budget, Ziegler cautions.
“Take a close look at your true max, and stick to that number,” she says.
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