An escalation clause is a valuable tool that can be used in a real estate contract to protect the buyer`s interests and ensure that they are getting the best possible price on the property they wish to purchase. In essence, an escalation clause is a contract provision that allows a buyer to increase their offer in the event that another party bids higher on the same property.
Here`s an example of how an escalation clause might work in a real estate contract:
Let`s say that a buyer is interested in purchasing a home that is listed for $400,000. The buyer doesn`t want to offer the full asking price right off the bat, so they include an escalation clause in their offer. The clause might look something like this:
“If another party submits a bona fide offer on the property that exceeds our initial offer, we will increase our offer by $5,000 above the competing offer, up to a maximum purchase price of $425,000.”
This means that if another buyer submits an offer for $405,000, the original buyer`s offer will automatically be increased to $410,000. If the competing offer is raised to $415,000, the original buyer`s offer will go up to $420,000. And if the competing offer reaches the maximum purchase price of $425,000, the original buyer will be capped at that amount and will not offer any higher.
The benefits of using an escalation clause in a real estate contract are clear. For one, it allows the buyer to avoid overpaying for a property, as they are only increasing their offer by small increments in response to genuine competition. Additionally, it can help the buyer win bidding wars without necessarily submitting the highest initial offer. By offering a flexible and competitive escalation clause, the buyer can come out on top even if they are not the highest bidder at the outset.
Of course, like any contract provision, an escalation clause should be written carefully and reviewed by an experienced real estate attorney. It`s important to ensure that the clause is legally enforceable and that it is fair to all parties involved. With proper planning and execution, however, an escalation clause can be a valuable tool for buyers looking to get the best possible price on their dream home.