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how it is used

Posted on: 05th Jan, 2007 05:53 pm
how an escalation clause can be used?
Hi Jbio,

Welcome to Mortgagefit discussion board.

An escalation clause is normally used in sale and purchase agreements. It is used to automatically increase the price offered to negate the offers placed by other people for the property.

It works like this; there is an initial offer placed by the buyer but if the seller gets an offer higher than this offer price then as per the escalation clause the price offered by the first buyer will increase as per specified incremental values to make the price higher than what has been placed by second probable buyer.

Posted on: 05th Jan, 2007 06:01 pm
Jbio, let me give you an example of how it works. Gordon makes a house purchase offer for $450,000 and there are reasons for him to believe that other people will also make offer for the purchase of the same house.

What Gordon can do is include a statement in his contract which would state that he is prepared to increase his offer price by increments of $4,000 if the seller receives any separate purchase offers which are higher than his initial offer. Gordon can also state the maximum his offered price can increase to be $475,000.

Posted on: 20th Jan, 2007 10:36 am

As a buyer placing the escalation clause, you should be aware of one vital point.

Do you really know that a higher offer came for the property for which you have placed your escalation clause? Is there any proof of it? What if any dishonest seller or his agent gave you false information that such an offer was made to him just to get your escalation clause activated.

The suggestion for you would be to ask for a proof that such an offer was actually made by some other buyer. Your escalation clause should also be created to include this fact;
"If in case the seller of this property actually receives any higher offer than offered in my contract, he should provide proof of such offer. While providing the proof, the seller can remove the name of that buyer because of privacy reasons. Seller warrants such separate offer placed before him as bona fide."
Posted on: 25th Jan, 2007 03:47 pm
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