Escalation Clauses

by Steve Meyers

March 29th, 2017

In this market where buyers are waiving inspections, presenting Offers without financing contingencies and, signing-off on their review of the Re-Sale Certificates without questions (condominiums), we’re also seeing “Escalation Clauses” that increase their Offers far above the List Price.  I attended a presentation of four of the top residential real estate attorneys last week where they unanimously disliked the “Escalation Clause” because it is fraught with potential for errors and miscalculations. There suggestions were to seek the highest and best Offer from the top two buyers based upon the “Escalation Clauses” but, then cross-off the “Escalation Clause” from the Offer and write-in the agreed upon purchase price on line 6 of Form 21 – Residential Real Estate Purchase and Sale Agreement and, have all parties initial the new purchase price.

The attorneys are seeing more and more disputes with the “Escalation Clauses” and recommend eliminating the Form from the Offer to Purchase, if possible.  A couple of suggestions were to present the “Escalation Clause” from the secondary buyer to the agent for the primary buyer to substantiate the higher price for them to submit / change the existing Offer.  Either cross-off the “Escalation Clause” on the front of Form 21 or Form 28 and then insert the new price with initials by all parties.  An alternative would be to submit a Form 34 with the appropriate language or, the Form 36 – Counter Offer.  However, any changes to the initial Offer to Purchase would be considered a Counter-Offer and would allow that buyer to not proceed with their initial Offer to Purchase.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.