Here is the March 2022 Market Update for Hampton Roads, regarding real estate for the region's seven cities of Virginia Beach, Chesapeake, Norfolk, Portsmouth, Suffolk, Hampton and Newport News. More information about market trends and months’ supply of inventory can be obtained from The Real Estate Information Network. Read more here....
What’s An Escalation Clause?
In today’s real estate market people aren’t talking about this, but it’s something that comes when writing a contract due to low inventory and multiple buyers competing for the same property. It’s the escalation clause.
An escalation clause, also known as an escalator clause is nothing new. There is an escalation addendum that can be added to the contract, or the verbiage can be included within the contract.
Here is an example that may be helpful in understanding it.
A buyer puts an offer of $300,000 for a home and includes an escalation clause stating that if a higher offer is received, they would pay $2,000 more than the other offer up to $325,000.
If the seller gets an offer for $320,000, the buyer has agreed by way of the escalation clause to pay $322,000 for the home. If the seller gets an offer for $326,000, the escalation clause would not support their offer since the other buyer’s offer was more than the highest price the buyer was willing to pay.
The seller’s agent must provide proof of the other buyer’s escalation clause to prevent someone from bluffing that they have a higher offer that may not be true just to get more money from the buyer.
It’s important that the agent you’re working with understands how escalation clauses work. Both buyers and sellers should understand this clause, especially in a multi-offer situation, as it will affect their decisions in the sales process.
This is not a time in real estate for buyers to low ball sellers, as some sellers are getting $50,000 or more in offers for their home.
It’s important that if you’re buying a home and are thinking about including an escalation clause as a negotiation strategy with your offer that your real estate agent has understands how escalation clauses work.
This is a sellers’ market, so if you’re going to be buying or selling a home you may come across this term. If you have more questions about escalation clauses feel free to contact me.
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We hope that you enjoyed this March 2022 Housing Market Update post!
