Escalation Clauses and How to Use Them in the Seattle Real Estate Market

Home buyers in the Seattle/Eastside real estate market are in for a competitive treat nowadays. Placing a offer is sometimes an act of crossing your fingers and hoping for the best. It's tough to compete with the multitude of cash buyers and foreign investors with expendable income.

Many homes are receiving 5 or more offers. Homes with 30+ offers? The stories are true.

Many homes are receiving 5 or more offers. Homes with 30+ offers? The stories are true.

Escalation clauses are used frequently in our market. These type of clauses are used when there is a likelihood of other competing offers on a home. Here is an example of how they work taken out of my Official Guide:

  • Let's say you offer full asking price on a $550,000 home (your initial offer price). You add an escalation clause saying you will beat any offer by $5,000 (incremental value), until the number hits $640,000 (your cap). If someone else offers $597,000, your offer would stand at $602,000 if the sellers chooses to accept your offer. If someone offers $637,000, your offer would only increase by $3,000 to $640,000, since that is your cap. 

The beauty of an escalation clause is that you won't pay higher than your initial offer price unless there is another competing offer that is higher than yours. The seller must prove the existence of another competing offer, so you don't have to worry about being lied to.

The incremental value you set to beat another competing offer is just as important as your cap amount, especially if you are financing your home as opposed to buying it with all-cash. The reason behind this is because you will need to create an incentive for the seller to take your offer over another buyer.

Let's say your offer is only $1000 higher than another offer - your offer is using financing and the other offer is all cash. The seller in most cases will take the all cash offer because the funds are already there, whereas your offer still needs to go through the loan process, which means it's contingent. All-cash offers also can close much quicker than financing offers, sometimes within days. Financing offers usually need at a minimum 21 days to close, and sometimes more than 45 days.  

Make sure your incremental value is a higher amount. Each home will be a different story, so ask your agent what the best strategy would be. The point is to further motivate the seller to take your offer because of a higher price difference. Beating an offer in price is not usually enough - you need to be a good amount higher.

If you want to win the home of your dreams in Seattle or its surrounding suburbs, you will want to devise a winning game plan. An escalation clause is just a tiny part of creating a strong offer. You will need to decide whether or not to waive contingencies, how you will be writing the offer, rapport building, and much more. My guide to beating multiple offers is totally free and covers every single step to winning against even the most motivated buyers. Luckily, many people don't have the best representation while house hunting, so your chances of beating multiple offers without overpaying is higher than you think!

Please reach out if need assistance with buying or selling a home in our hot market. Who you choose to represent you as your agent matters, and in many cases a good agent is the missing link between you and your dream home. I would love to answer any questions or help in any way, no matter what stage you are in!


 
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Kevin Boroumand
Realtor / Real Estate Broker
(206) 734-1053
boroumand.kevin@gmail.com