You may have heard the term “escalation clause” thrown around when reading about buying a home in Sedona. Escalation clauses can be a valuable tool in certain situations. However, it’s important to understand the pros and cons before deciding whether to use one.
Let’s start with the positives.
One of the main benefits of including an escalation clause in your offer is that it keeps you in the game.
In a market with limited inventory and high demand, multiple offer situations may be common. When there are multiple buyers vying for the same property, it can be difficult to know how much to offer without overpaying.
An escalation clause can help you stay competitive without having to constantly adjust your offer price.
Another benefit of including an escalation clause is that it shows the seller that you are serious about purchasing their home.
When a seller receives multiple offers, they want to feel confident that the buyer they choose will follow through with the sale.
Including an escalation clause can demonstrate your commitment to the purchase and may make your offer more appealing to the seller.
However, there are also some downsides to consider when deciding whether to use an escalation clause.
One potential drawback is that it can reveal your maximum offer to the seller. When you include a maximum amount in your escalation clause, the seller knows exactly how high you are willing to go.
This information can be used to the seller’s advantage when negotiating counteroffers.
Another downside to using an escalation clause is that it can create uncertainty for the seller. If your offer includes an escalation clause, the seller may not know for sure what your final purchase price will be until another buyer submits a higher offer.
This can make it difficult for the seller to plan and can potentially delay the sale.
So, when should you use an escalation clause?
The answer depends on your individual situation and the specifics of the property you’re interested in.
If you’re in a highly competitive market and you’re confident that you’re willing to pay more than other buyers, an escalation clause can be a useful tool for staying in the game.
However, if you’re not comfortable revealing your maximum offer or you’re concerned about creating uncertainty for the seller, it may be best to avoid using an escalation clause.
Ultimately, the decision to use an escalation clause should be made in consultation with your real estate agent. Your agent can provide guidance based on their knowledge of the local market and their experience helping buyers navigate multiple offer situations.
