In competitive markets, buyers need to do everything that they will to assist their offers stand out from the gang . Sometimes that even means including an escalation clause. If you’ve been wondering whether an escalation clause can assist you buy a home, keep reading. Below you’ll learn what an escalation clause is, how the clause works, and what effects it can wear your offer.

What is an escalation clause?

As the name suggests, an escalation clause may be a clause which will be included during a purchase offer. If there are multiple offers on the house , this clause allows you to extend your suggested price so as to avoid getting outbid.

Typically, there are three important parts to an escalation clause:

Proof of a real offer: Sellers can’t just use an escalation cause to secure a far better sale price. In order for the clause to travel into effect, the vendor must be ready to provide proof that another offer came in above yours.
An escalation amount: The escalation clause also will include the quantity by which you'd wish to outbid the other offers. If, for instance , another party offered $400,000 and your escalation amount was $5,000, the escalation clause would increase your offer to $405,000.
A price cap: The cap represents the utmost amount that you’re willing to buy the house , or how high you’re willing to permit your offer to travel .
How escalation clauses can help your offer

Essentially, using an escalation clause cuts out the center man on price negotiations. Normally, when there are two competing offers on a home, the listing agent will negotiate with both parties to ascertain who is willing to place forth the very best and best final offer.

With an escalation clause, there’s no need for all of that back-and-forth because your position is written out on paper. It also indicates to the sellers that you’re very serious about buying the house , which can you a foothold over other potential buyers.

How escalation clauses may hurt your offer

That said, escalation clauses aren’t perfect. For one thing, by including your price cap within the contract, you’re more or less laying all of your cards on the table. You’re telling the sellers exactly what proportion you’re willing to spend on the house , which may hurt your chances of negotiating a far better deal.

For another, an escalation clause only considers the sale price. Often, in lieu of paying extra money , other factors like the settlement date or any elected inspections are often negotiated so as to form your offer more attractive to the seller. However, using an escalation clause makes it easier for those negotiation points to be overlooked.