Escalation Clauses Rebound in Market

Real estate professionals say escalation clauses are becoming more common in markets characterized by multiple offers, helping buyers win bidding wars by automatically raising their offers when a competing bid is made. The offer is increased by a preset amount until it reaches a cap, and sellers need to provide proof of a bona fide competing offer before the clause is triggered. However, Partners Trust Real Estate Brokerage and Acquisitions President Nick Segal says, “There is a leap of faith that these other offers are legitimate. Offers have been known to be fabricated to support getting a buyer using an escalation clause to pay their ceiling price.” Buyers also have to be wary of competing offers that also include a certain amount paid by the seller in closing costs, as the competing bid can be interpreted as higher than it really is. Moreover, buyers should include an appraisal contingency in the escalation clause to ensure the actual purchase price is in line with the lender’s appraisal; but they should not view the clause as a guarantee that the seller will accept their offer. Some agents recommend that buyers avoid using escalation clauses altogether, unless it is a that house they really love. | Read More