If you’re considering buying a house in an area where bidding wars are common, talk to me about including an escalation clause as part of your offer. It can become an important tool in a multiple-offer situation.
An escalation clause means that your offer is automatically increased by a certain amount in response to a competing buyer's higher bid, with a maximum offer price stated in the contract.
Here’s how it works: Let’s say you’re offering $120,000 on a house. In your escalation clause, you specify your bid can automatically go up by $2,000, for example, with a maximum offer of $135,000. When another buyer bids $122,000, your lower offer doesn’t lose out right away, because the clause automatically escalates it to $124,000.
There are some important considerations to make regarding escalation clauses. I might advise against it based on the homebuying climate in our local market; it might be that some sellers won’t consider an offer that contains the clause. On the other hand, I might see it as the leg up you need in that area.
Also, you’ll need to ensure your mortgage pre-approval amount allows for those increases – and you can afford the higher monthly payments that come with approaching your maximum buying power. It’s smart for us to talk it over and run your plans by your lender before deciding to use an escalation clause.
The point: Low inventory and bidding wars don't have to discourage you from making an offer on that dream home. You have options.
Please consider The Myers Team your resource for all things real estate. We have over 30 years of real estate experience, specializing in the Montgomery County area. If you are refinancing, want a recommendation, need a service provider or just have a home related question, please give me a call at 301-910-9910 or email me at bobmyersteam@gmail.com.
