Private mortgage insurance (PMI) can be an expensive requirement for your home loan, as it adds more to your monthly payment costs. This is a safeguard that your lender will take out to cover a portion of the amount you borrowed in case you default. Up Next: P.I.T.I.: Understanding The Parts Of Your Mortgage Payment […]
Should You Accept An Escalation Clause?
Selling a home is often not the simplest of tasks: You must find a reputable Realtor to help you sell, market the property, obtain an MLS listing, the list goes on. When a buyer makes an offer on your home, they may offer what is known as an escalation clause.
Ask yourself the following questions before accepting an offer with an escalation clause:
Do You Want To Continue Negotiations?
If you accept an escalation clause, that means you will no longer be able to issue multiple counteroffers to other interested buyers, nor continue negotiations. This is a big reason why some sellers do not accept escalation clauses: The lack of counteroffers could cause you to lose money on the home.
While you should not expect to get your desired asking price when selling your home, if you’re worried about losing money on your home, accepting an escalation clause may not be the best idea.
What Does Your Realtor Say?
Escalation clauses can have unintended consequences if the buyer and their representative did not draft it carefully. For example, if the two interested buyers did not put a cap on how much they’re willing to spend, then you could find yourself in the middle of an aggressive bidding war. Your representative should help you understand what an escalation clause is, what it means for both you and the buyer, and how it can affect you.
Remember, you always have the option to send offers with escalation clauses back to the buyer, removing the escalation clause and setting a specific sale price. If your Realtor is pressuring you to accept an offer with an escalation clause and you’re not comfortable with it, it may be best to find another Realtor.
Is The Offer Genuine?
If a buyer is putting an offer on your home with an escalation clause and is not serious about the purchase (perhaps they also have bids elsewhere), it is best not to accept. If you are unsure if an offer is genuine, ask the buyer to provide you with a copy of their offer. If their offer price is unusually low or they have no pre-approval from a lender, move on.