Escalation Clauses ? A Home Buyers Secret Weapon

Today we discuss escalation clauses because much of the country is experiencing an extreme "sellers' market." By that, I mean there are more buyers than there are sellers, and that results in sellers' getting more than one offer to buy their property. The seller can be picky about the terms under which he is willing to sell. A potential buyer is apt to make one or more offers which are rejected before making a successful offer. If you are a buyer, how do you increase the chances that your offer will be the acceptable one?

The obvious things a buyer can do is to have a strong "pre-approval" lender letter, and make an offer that is full price and is as "clean" (has as few contingencies) as possible. Is there anything a buyer can do beyond that? You bet your bippy!

Escalation Clauses

A buyer who really wants to buy a property can do the above, plus add an "escalation clause." An escalation clause simply states that the basic offer is full price, but if the seller receives one or more other offers at full price or higher before this offer is accepted, then this offer is increased by $500, $1,000, $5,000 (or whatever figure you choose) above the other acceptable offer. Of course, you choose the amount of the incremental increase based on what you think it'll take to get the sellers' attention given the original asking price of the home.

Now, I can hear you thinking, "That's all very well. I can see where that'll get me the winning bid, but how do I make sure there really is another contract? More importantly, how do I make sure I can afford the home? Isn't this awfully open ended?"

Yes, it is. So let's fine tune the escalation clause idea a bit.

First, make the escalation offer such that it will increase the sellers' net proceeds (not gross proceeds) by $500, $1,000 or whatever. That way, your price is not artificially increased by a higher offer that includes a provision for the sellers to pay some of the costs that are normally born by the buyer.

Secondly, name an upper limit to which your offer can be carried. For example, your offer could state that you will pay the sellers an amount that will increase their net proceeds by $10,000 above any other acceptable offer up to a total price of $1,500,000. That puts a cap on how high you're willing to go.

Prior to making an offer like this, be sure to have a conference with your lender to be sure you qualify for the highest amount required by your offer. Obviously, you also need to be sure you know and can pay the mortgage payments on that amount. It's also a good idea to get a lender letter for this higher amount, so that the sellers will be confident you can do what your offer says you're willing to do.

The third bit of fine tuning is to require that the seller provide you with a copy of the acceptable competing contract as signed by the other potential buyer. Make sure the "buyer" isn't a relative of the seller! With the written offer on hand, you can be sure everything is on the up and up.

In this hot sellers market, escalation clauses can be the key to closing a deal on your dream home. If a seller is motivated by greed, you will have them dead to rights.

Raynor James is with http://www.fsboamerica.org - providing homes for sale by owner, "FSBO", properties. Are you thinking, "Should I sell my home?" Visit http://www.fsboamerica.org/seller.cfm to sell your home sale for free for one month.

In The News:


pen paper and inkwell


cat break through


Why it is Important to Hire Just One Real Estate Agent to Buy a Home

In our fast paced and frantic real estate market, buying... Read More

Commercial Real Estate Industry - Is the Condo Craze Over, or Just Gaining Steam

Over the last two years there has been so much... Read More

What?s Your Style? A Guide to America?s Most Common Home Styles

Styles of houses vary across the country. From the New... Read More

Seller Objections To Lease Purchase

A large percentage of the mail we receive are from... Read More

Real Estate, Real Property and Leased Land; Definitions, Discussion and Explanations

Delaware, and the rest of the original British Colonies, has... Read More

Home Equity or Debt Trap?

Are you using the equity from your home to purchase... Read More

Residential Income Property Financing: Part 2 of 3

Welcome to the second segment of a three-part series about... Read More

Foreclosure Home Deals

Did you know that you can save tens of thousands... Read More

Escalation Clauses ? A Home Buyers Secret Weapon

Today we discuss escalation clauses because much of the country... Read More

What are the Elements in Real Estate?

Each element has a specific color associated with it. Because... Read More

Relocation Humor: Why I Bought A House

The Rental Experience in South FloridaReaders: This is based on... Read More

How to Research and Purchase a Good Investment Property

How much do you really know about investment property? Accurate... Read More

Renting a House

Renting a house or a room in your home is... Read More

For Sale By Owner - Use This Tip To Sell Your Home Quicker and At a Better Price

Your house is for sale by owner (fsbo), Along with... Read More

Home Owners: Disclose the Facts!

One of the most common causes for disputes occurring after... Read More

Expense List for Buying a Home

There are many expenses that come with buying a home.... Read More

How to Choose Your Real Estate Lender

Because you need quick action when applying for a real... Read More

What to Look Out For When Buying Off Plan

Buying Off PlanIt can be difficult to decide when every... Read More

Selling Investment Houses: Psychology of Mirrors

Discover new interior Design Psychology strategies to increase your real... Read More

Real Estate Investing in Rentals ? the $10 Million Real Estate Investing Mistake

Renting to tenants is no longer "where the money is"... Read More

Curb Appeal

First, lets start with what it is. Curb appeal is... Read More

Prepare Your Property Like A Pro And Boost Profits

The housing market is hot, and you've decided to list... Read More

An Often Overlooked Secret of Marketing and Negotiating for Real Estate Investors Looking for Deals

When you call sellers, what do you say? When you... Read More

Hurricane Katrina And The Impact On Real Estate Prices

In the wake of Hurricane Katrina's wide path of destruction,... Read More

Old House? New House? Weighing Your Options

Maybe it has something to do with a childhood home... Read More

Real Estate Investing Myths That Steal Profits From Your Pocket

One of the things that distresses us about our industry... Read More

Finding the Right Real Estate Agent:: A Guide for Seniors

When considering buying or selling a home, seniors have a... Read More

Advantages to Buying or Owning a Condominium

Condos have become an increasingly attractive home ownership option for... Read More

Tidy Up The Outside, Reap The Rewards

There isn't a realtor in existence who wouldn't tell you... Read More

A Simple Step by Step Aproach to Fail Your Way to a Million Dollars

If You want to be Financially Successful you need to... Read More

How to Make the Real Estate Market Work For You and Get The Most Money

How to make the Real Estate market work for you... Read More

Selling Property - Valuing Your Property

Selling property privately has many advantages over using an estate... Read More

Selling Your House Fast!

The physical senses of buyers respond to a home's design,... Read More