Now that real estate prices are on their way to recovery, it’s high time investors learned how to use an escalation clause in their purchases. Basically, what this means is that the purchase contract has several amounts detailed, and specific conditions to ensure that the purchaser manages to buy the property. This is useful when you are buying properties in a competitive climate, and also when you are negotiating the purchase of a property that you really want to buy – for whatever reason.
As with most things, it is best to describe how an escalation clause works by using an example. Let’s say I am looking to purchase a property which has an asking price of $145,000. I really want that property because I also own the block next door and have a nice development in mind. I know for sure that there are a few other bidders on the property though. So I protect my chances of locking in the purchase of the property by detailing an escalation clause when I submit my offer.
The exact details of the clause are up to you – but continuing the above example, let’s say that we really want to be sure that we secure the property in question. So we offer $135,000 with a $500 escalation clause up to $180,000. What this means is that the amount of my offer continues to rise as other interested parties make offers higher than mine, up until that pre-set price.
So if among the other parties there is one who offers $171,000 then my escalating price clause ensures that my offer extends to $171,500 – meaning that I secure the property. If you aren’t using these escalation clauses in real estate negotiations, you should be. They are a great tool that you can use to significantly increase your chances of landing the property that you want, for the price that you are will to pay – even in a competitive market with rising prices.
The real estate market is getting warmer by the day – and it is time to look beyond the short sales and foreclosures to land good deals. A good knowledge of simple practices such as the use of escalation clauses will see you have more regular success in closing the deals that you want – and therefore being able to reach the goals in your business plan all the more quickly.