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    How Do Escalation Clauses Work?

    Here’s what you need to know about escalation clauses.

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    Today I’m discussing a new clause in our marketplace. The clause itself isn’t new, but it’s fairly new to our market; we haven’t seen it much until this year. It’s called the escalation clause. This clause escalates the price of a property, and it can be used for two main reasons:

    1. Advantage over the competition. If another buyer offers the same price for the home, your offer looks better to the seller.

    2. Sellers know you’ll pay more. You can put in your contract that you’ll pay more than any other offer that comes in, up to a certain number.

    Here’s an example of an escalation clause: Let’s say your offer is $200,000, and there are other offers for the house. Your escalation clause could say that you’ll go a thousand dollars higher than another bid, up to a maximum price of $220,000. This assures you’ll have an edge over any offer under $220,000. So the final crucial part of the escalation clause is a cap on your offer so the price doesn’t increase to a point where you can no longer pay it.

     

    “By understanding how the clause works, you’ll be prepared to pay whatever the final price is.”

     

    If you’re still unclear about how escalation clauses work, speak to your real estate agent to ensure you understand the process because it can cause you to pay more than you anticipated. However, by understanding how the clause works, you’ll be prepared to pay whatever the final price is.

    If you have further questions about escalation clauses or anything else concerning real estate, call or email us. We would love to help you.

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