Today I’m here with my sister, Tina Hivnor, to discuss a common question that we’re often asked: “What can I do to win against buyers who are competing with me for the same house?” We train all of our Realtors to use a particular strategy that will help our buyers win out against the competition—the escalation clause.
In our market, inventory is low, which means that many of the houses that are for sale are gathering points for many different buyers. This means that bidding wars are more and more common.
An escalation clause is a means to give your client a competitive edge during these multiple offer situations. They’re forms that direct you to increase your client’s offer by a certain increment in case a competitor’s offer exceeds yours.
Suppose a home is listed for $179,000 and you offer $182,000. If there’s a lot of competition and you suspect you might have to offer up to $187,000 to win, you can set up an escalation clause to automatically surpass a competing offer by, for example, $1,000 up until that mark is reached.
You do need to make sure that the listing agent understands how these clauses work, however. We’ve had some suggest that it was illegal, when they’re not.
Once the buyer wins the contract, the contract is modified and the escalation clause goes away.
How do listing agents deal with escalation clauses? Naturally, the seller is at a huge advantage in this situation, because now they know what your buyer is willing to pay if someone else is willing to pay just under that amount. A lot of times, I’ll suggest that we go back to the buyer who wrote the clause at $187,000 and give them a counteroffer of $187,000. There’s nothing to lose, and in many cases, those buyers will accept that.
If you have any questions about escalation clauses or about how to augment an offer so that it’s sure to win in a bidding war, reach out to us. We have a team of experts who are all prepared to guide you to success.