In a market where inventory is limited, it is becoming increasingly common to experience a multiple offer scenario. As a result, many buyers wonder how they can differentiate themselves from the competition. Escalation clauses or sharp bids are possible solutions, but they may not be the best choice in negotiations. You will better determine which offer is best for your house if you work with a Port Aransas real estate agent. Furthermore, read on to learn what an escalation clause is, how it works, and why you may not want one.
How does an escalation clause work?
A sharp bid is also known as an escalation clause. The escalation clause provides the buyer with the opportunity to increase its offer. In the Sales Agreement, you'll find a contingency that allows you to escalate your offer if necessary. The seller will know that if another offer comes in with a sale price higher than yours, you are willing to negotiate upwards to remain competitive. There are three elements to an escalation clause:
- Price at which you originally sold your item.
- If necessary, your offer would be worth the amount of money over a higher bid.
- It would be best to offer only the maximum sale price you can comfortably accept.
This clause will allow you to discuss these amounts with your Port Aransas property for sale agent when your offer is drafted.
The Clause: How Does It Work?
Explanations of escalation clauses often fall flat unless examples accompany them. For example, assume you have agreed with your agent to do the following.
- Initially, the price was $1,500,995.
- Then the escalation amount was $15,00.
- And the maximum sale price was $1,515,995.
For example, a new offer for the property could come in at $1,510,000, and the clause would automatically escalate the price to $1,510,000 since that price falls within your escalation range. Nonetheless, if the other offer had been $1,520,00 instead, your request would not escalate because it exceeds your cap sale price.
What are the benefits of using this clause?
They were having a second chance at negotiation benefits from an escalation clause. Negotiations between sellers and buyers are not required. Rather than allowing you an opportunity to raise your offer, they may just reject it instantly if they feel your request is too low. However, with an escalation clause, the seller cannot make specific moves in the form of a counteroffer, but you have the right to revise your offer at any time.
Escalation Clauses are mainly unknown to most agents
Many real estate agents have never heard of escalation clauses because they are an advanced approach to real estate. However, in most cases, it wouldn't be in your best interest to submit an escalation clause to an agent without a good understanding of how they operate.
It is possible that the seller will be offended
The Port Aransas home for sale agent emphasizes the danger of an escalator clause offending a seller and causing an emotional reaction if the seller sees that a buyer is willing to pay substantially more than what the seller offered.
The seller makes decisions
An agent's role is to bring buyers and sellers together, but ultimately it's up to the seller to decide how to respond to an offer. If the seller's representative does not understand the escalation clause, they may not be able to explain it to the seller, which may cause your offer to be overlooked. That is why it is so important to choose the right real estate agent when buying or selling a house.
Final verdict
Last but not least, using these tips will help you purchase a home while minimizing cash out-of-pocket and avoiding costly mistakes. Feel free to contact a Port Aransas real estate agent with any questions you might have if you consider buying or selling your house. Getting in touch with us is easy, and we welcome the opportunity to help you find a perfect home that satisfies your needs and your family's.