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What is an Escalation Clause? – Real Estate Vocab 101

escalation clause

Watch Alexis Nickley break down what an escalation clause is here!

The term we’re focusing on today is an escalation clause. When you start your research into the home buying process, this clause will most likely not be top of the list of terms to learn. But we think it’s important for our buyers to know this option in this extremely competitive real estate market.

Alexis Nickley compares the escalation clause to mayo. You either love it or absolutely hate it. But what is an escalation clause?

An escalation clause is a clause that is added to your offer, that states you will automatically offer a certain amount over any offer that comes in higher than yours. Thus, putting your offer to the top of the stack.

Let’s break down an example.

When a home is listed on the market, the potential buyer will offer the house for $250k. They could add an escalation clause of $1,000 up to $20,000 over asking. If another buyer were to offer $255k, your offer would automatically be raised to $256k. Making your offer higher than the highest offer.

 

As a buyer, this sounds great. Your offer will continue to be at the top of the seller’s list. But in this multiple offers market, this is where the mayo metaphor comes into play. The seller and listing agent will go insane if 20 potential buyers have this clause. 

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Sometimes a buyer should submit a solid offer (not including an escalation clause) that the listing agent and seller can’t deny. The seller gets a great price for their home, and the listing agent doesn’t have to go through 20 escalation clauses to get the best price for a home. 

 

This clause isn’t for every situation, but having an experienced agent can help you make that decision. If you need assistance in buying or selling a home, even if it’s just for advice or clarity, our team would love to help. Give us a call at 407-906-2456, or email us atinfo@thenickleygroup.com

Previous Real Estate Vocab 101: What is an Appraisal – Real Estate Vocab 101.