Getting Your Offer Accepted! - Write an Offer with an Escalation Clause in the Case of Multiple Offers (Part 11 in a Series)
Have you found the home you want to buy and are now writing an offer? Did you just learn there are other parties writing an offer on your home too?
Welcome to a Seller's Market!
Denver real estate is currently experiencing a shortage of inventory but an abundance of buyers looking to take advantage of the low interest rates. This situation doesn't seem to be easing up especially in the price ranges less than $350,000. The lower in price the house it the more competition there is.
If you are serious about winning the bid there are some things you can do to assure the seller likes and accepts your bid above all others.
Now is not the time to play "Let's Make a Deal!" Now is the time to show the seller your good intent by offering a price on the home that exceeds the list price and includes and escalation clause.
What is an Escalation Clause?
Escalation Clauses are used in the case of competing offers. When there are more that one offer on a property an offer with an escalation clause will kick in. Typically such a clause will indicate the buyer is willing to pay $X more than the highest offer increments of $2000.00, up to a value of $X
So in simple terms say the house is listed for $300,000. There is a competing offer for $315,000. The escalation clause would make your offer $317,000.
How do you know there actually is a competing offer?
Good question, it's hard to trust when money in involved so within the escalation clause there is a stipulation that the listing agent must show the competing offer along with the lender letter indicating that the other buyer exists and can actually purchase the property.
Do Escalation Clauses Work?
In theory they do work, but as I've been discussing though out this series, sellers have different goals. Sometimes price is only one part of those goals. If your offer isn't up to the seller's standards in terms, personal property, conditions, and/or closing date then the escalation clause may not work.
You can also get out bid. The competing offer might have offered more.
There are no set rules for how large an increment you need to set or how high you should go. Knowing what the other offer is would be helpful, but that knowledge isn't something we are privy too. Some homes are bid up tens of thousands of dollars and others only a few thousand. It really depends on the value of the home and the potential future value. If you don't feel comfortable bidding the home up, then don't.
Escalation clauses are meant to help secure the home in a rising market. It is another tool to accomplish a goal.
If you are just starting the home buying process and are in need of an experienced buyer broker, pick up the phone and give me a call. I work hard to make sure my clients are the ONE WINNER!