Clauses that Will Help You Win: Escalation & Appraisal Gap

Dated: January 19 2021

Views: 12677

The market is remains very tight with low inventory and high demand. It's been a constant theme for some time now. Buyers are being outbid left and right and feeling disheartened by the sight of their ideal homes being picked up by a competing offer. Buyers should consider not only putting their highest and best offer, but also these two winning clauses in a multiple offer situation:

Escalation Clause: This clause is when a buyer writes an offer to pay more than the highest offer up to a certain amount.

Example language: “Buyer to pay $2,000 above the highest offer up to $500,000. Seller must supply a copy of the highest bona fide offer.”

While the purchase price gets pushed higher with the escalation clause in effect, the concern then becomes the appraised value. A buyer can only get a loan for what the home is appraised for. And the buyer could renegotiate the purchase price (in a normal market) if the appraised value comes in low. This concern leads to the next clause, the appraisal gap guarantee clause.

Appraisal Gap Guarantee ClauseThis clause states that if the home were to appraise lower than the stated purchase price, the buyer would bring money above appraised value OR make up the entire difference between the appraised value and purchase price.

Example language: “In the event the appraised value comes in below Purchase Price, then Buyer agrees to pay  up to $6,000.00* over appraised value not to exceed purchase price. Any such cash differential shall be applied to Buyers` Cash at Closing amount in Section 4.4. Section 6.2.1 shall apply in the event the appraised value comes in below the stated listing price at the time the offer was submitted.” 

*can be any dollar amount above appraisal.

The gold standard in a multiple offer situation:

An offer with an escalation clause and appraisal gap guarantee.

This shows you are serious about the home and willing to upfront money in different ways.

Even though we continue to be in a tight seller's market, there are still deals to be had. Always keep an open mind while looking for a home and consider looking at homes that do not have professional pictures or have been on the market for longer than a week. This typically can mean there will be less competition. If you do find yourself in a multiple offer situation, keep in mind these clauses that are being employed in this market. Also consider looking below your maximum budget so that you can offer a very attractive offer to the seller.

Blog author image

Jennifer Lee

Jennifer is perseverant, honest, and possesses solid interpersonal skills to bring the best service for her clients. She makes sure to strike the “right balance" by empowering her clients with infor....

Latest Blog Posts

How To Think Strategically as a Buyer in Today's Market

How To Think Strategically as a Buyer in Today’s MarketThe game of chess can provide incredible lessons to apply to all aspects of life, including the homebuying process. Chess requires you to

Read More

New Construction or Existing Home: Which Is Right for You?

Homebuyers today are facing a huge dilemma. There simply aren’t enough homes for sale.1 Nationwide, there were 1.27 million active listings in September, down 13% from the previous year.

Read More

Why Now Is a Great Time To Sell Your House...

As we near the end of the year, more homeowners are realizing the benefits of today’s sellers’ market. Record-breaking home price appreciation, growing equity, low 

Read More