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Trend No More? Escalation Clauses Losing Appeal

More real estate pros are advising clients not to use the clauses, which may give away too much info in a bidding war and hurt any negotiations.

NEW YORK – Escalation clauses may be giving away too much information in a bidding war, and more real estate agents are advising their clients not to use them. Apartment Therapy recently called escalation clauses one of the “shortest-lived real estate trends of 2021.”

The housing market remains competitive, but home buyers are realizing that escalation clauses are revealing to sellers exactly how much they’re willing to pay above asking price for a house. As a result, in some cases, they are costing buyers their ability to negotiate.

An escalation clause lets sellers know that buyers are willing to increase their offer if other, higher offers come in. They are added to contracts to offer immediate counteroffers.

For example, buyers may offer to purchase a home for $300,000 with an escalation clause that says they are willing to increase their amount to $325,000 if competing bids come in. Or the contract may state “the purchase price shall be $1,000 higher than any other offer,” within a stated limit.

The pandemic has made escalation clauses more popular as competition has sharpened. Some Realtor® associations have cautioned their members about using the clauses.

Source: “This Is the Shortest-Lived Real Estate Trend of 2021,” Apartment Therapy (Dec. 1, 2021)

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