What is an Escalation Clause?

by Corcoran McEnearney

We have seen housing market prices increase significantly nationwide in the past year. This is especially true in the DMV area because of the shortage of houses that are ready to move into.

It boils down to a supply and demand problem. There is a scarcity of buildable land in the immediate Washington suburbs, which means that unless a lot of people move away, there is nowhere to move into.

If you couple this with the fact that large industries such as Amazon and Google are bringing a significant number of jobs to the area, as well as the already existing tech and government jobs, it means that there are more buyers than houses.

What does this mean for you?

In this market, buyers need to be willing to compete to have their offer be accepted. One of the most effective ways to win the bidding war is to submit an offer with an escalation clause.

An escalation clause allows the buyer to be competitive, but only pay a little bit more than someone else is willing to pay. Think of it like an auction. The terms laid out in the escalation clause will bump your initial offer at a set increment until you reach “the cap” or the highest possible number you are willing to pay for your new home.

An escalation clause is great for buyers because the listing agent must show evidence of the next highest offer in order for the escalation clause to kick in. This prevents a buyer from overpaying for a house because you have visible proof that someone else is also willing to pay the same amount or more for the home.

Jean Beatty is a licensed real estate agent in VA, MD, and DC with McEnearney Associates Realtors® in McLean, VA. If you would like more information on selling or buying in today’s complex market, contact Jean at 301-641-4149 or visit her website JeanBeatty.com.

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