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There’s one clause that we see used a lot more in offers in super competitive markets. But  it’s valuable anytime you’re writing an offer and in this video I’m going to explain to you how that clause works.

So what is this clause? What is this clause that you should use all the time? We see it used more so in busy markets. It’s an escalation clause and it’s kind of like what it sounds like. You might even have heard people refer to it as an ‘escalator’. We put an escalator into our offer and that’s kind of how it works.

We write your initial offer price. We’ll say that’s the floor and then at the top of that escalator is the most you’d be willing to pay for that property. By writing this clause, we can let the other buyers offer to drive you to the highest price. Versus you writing your highest and best right out of the gate.

The way you get driven up those steps is part of that clause is we say what increments it’s going to go up. So we’ll Say we will pay $2,000 more than the Next highest offer for $5,000 more than the next highest offer. But we always put that ceiling in so you don’t get bid to the sky. So this is the most you’ll pay. This is what you want to offer right now and you’re willing to pay wherever the market drives you to up to that point.

This makes sense to do when we know there are other offers on the table. But we don’t know how much they’re offering and we don’t want to over pay in real estate.

You’re not over paying if you win on a house where there were other buyers. What we say in real estate is a house is worth what the market will pay for it. That market is what buyers collectively are willing to pay for that property. Also this term can be used in slightly less competitive scenarios when another offer might show up on the table. So, I’ve used it when we were the only offer on the table at the time, but we know there’s been other showings recently. We can even use it when we’re not bidding over list price.

So, let’s say we write 10% below the list, for example. But say, hey,  we’re willing to give you a little over list if other offers show up to drive us there. But, we’re not willing to pay this much and let other buyers make us pay that.

So for you as a buyer that can be a way to be more comfortable paying that higher price because you know, you had to. The way the seller proves to us that there are other offers is by providing to us that next highest bona fide offer. They redact the personal details of the other buyers, but they have to show us that they have that offer. They can’t just say, ‘oh yeah, we totally had one for $100,000 more than what you offered.’ They have to show it to us. I love this term because it takes some of the hill getting married out of writing an offer. Without an escalation clause, that’s what you’re doing. You have to guess and hope that you write the highest one versus, this way we can really have a conversation about it. What do you want to offer, and what’s the most that you would be willing to pay? We would write our escalation clause based on that.

So, I want to know would you be willing to include an escalation clause?  If you have thoughts on it please put them in the comments below. I’d love to know and I’m going to do part two where I talk about the other terms that I like to pair with an escalation clause.