Should I Include an Escalation Clause? (Sample Included)

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In a competitive seller's market, buyers may elect to include an escalation clause as a part of their offer. An escalation clause is a special stipulation that automatically increases the price of a buyer's offer, in the event other offers are received that would yield a greater net to the seller. This can help the buyer win the contract, but will the property appraise for the higher sales price? Both the buyer and seller should consider the future appraisal and whether or not the buyer has the cash to pay the difference between the appraised value and purchase price should the appraisal come in low. Derek Varnadoe, a licensed Georgia real estate broker, discusses this clause and weighs the pros and cons.

Sample Escalation Clause
In the event Seller receives other written bona fide offers to purchase the Property with acceptable terms that would result in a higher net to Seller at closing, the Purchase Price herein shall automatically be increased by $____________, not to exceed a maximum Purchase Price of $____________. Net to Seller is hereby defined as the Purchase Price less any Seller-paid contribution toward Buyer’s closing costs. If Buyer’s offer, based on the above formula, is the highest offer, Seller agrees upon request to provide Buyer with a copy of the next highest written offer. Upon request, all parties agree to sign an Amendment to the Agreement confirming the increased Purchase Price.

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Copyright © Solid Source Real Estate Companies. All rights reserved. This material has been prepared for informational and educational purposes only, and is not intended to provide, and should not be relied on for, legal advice. You should consult your own legal counsel, or real estate broker if a real estate licensee, before engaging in any transaction.