Escalation Clauses - A Home Buyer's Secret Weapon
By Raynor James, Fri Dec 9th

Today we discuss escalation clauses because much of the countryis experiencing an extreme "sellers' market." By that, I meanthere are more buyers than there are sellers, and that resultsin sellers' getting more than one offer to buy their property.The seller can be picky about the terms under which he iswilling to sell. A potential buyer is apt to make one or moreoffers which are rejected before making a successful offer. Ifyou are a buyer, how do you increase the chances that your offerwill be the acceptable one?

The obvious things a buyer can do is to have a strong"pre-approval" lender letter, and make an offer that is fullprice and is as "clean" (has as few contingencies) as possible.Is



there anything a buyer can do beyond that? You bet your bippy!

Escalation Clauses

A buyer who really wants to buy a property can do the above,plus add an "escalation clause." An escalation clause simplystates that the basic offer is full price, but if the sellerreceives one or more other offers at full price or higher beforethis offer is accepted, then this offer is increased by $500,$1,000, $5,000 (or whatever figure you choose) above the otheracceptable offer. Of course, you choose the amount of theincremental increase based on what you think it'll take to getthe sellers' attention given the original asking price of thehome.

Now, I can hear you thinking, "That's all very well. I can seewhere that'll get me the winning bid, but how do I make surethere really is another contract? More importantly, how do Imake sure I can afford the home? Isn't this awfully open ended?"

Yes, it is. So let's fine tune the escalation clause idea a bit.

First, make the escalation offer such that it will increase thesellers' net proceeds (not gross proceeds) by $500, $1,000 orwhatever. That way, your price is not artificially increased bya higher offer that includes a provision for the sellers to paysome of the costs that are normally born by the buyer.

Secondly, name an upper limit to which your offer can becarried. For example, your offer could state that you will paythe sellers an amount that will increase their net proceeds by$10,000 above any other acceptable offer up to a total price of$1,500,000. That puts a cap on how high you're willing to go.

Prior to making an offer like this, be sure to have a conferencewith your lender to be sure you qualify for the highest amountrequired by your offer. Obviously, you also need to be sure youknow and can pay the mortgage payments on that amount. It's alsoa good idea to get a lender letter for this higher amount, sothat the sellers will be confident you can do what your offersays you're willing to do.

The third bit of fine tuning is to require that the sellerprovide you with a copy of the acceptable competing contract assigned by the other potential buyer. Make sure the "buyer" isn'ta relative of the seller! With the written offer on hand, youcan be sure everything is on the up and up.

In this hot sellers market, escalation clauses can be the key toclosing a deal on your dream home. If a seller is motivated bygreed, you will have them dead to rights.

About the author:Raynor James is with http://www.fsboamerica.org - providing FSBOhomes For Sale By Owner. Visit our "sell my home" page athttp://www.fsboamerica.org/seller.cfm to list and sell your homefor free for one month. Visithttp://www.fsboamerica.org/buyer.cfm to see homes for sale byowner.

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