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Should You Include an Escalation Clause in Your Land Offer?

should you include an escalation clause in your land offer?

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Published date:

January 05, 2024

Last updated date:

January 05, 2024

By Laure Mueller

When buying land or other types of real estate, it always helps to put out the best offer that you possibly can. And sometimes, that means putting an escalation clause in your offer to show a seller just how serious you are about closing the deal. 

Escalation clauses have become a popular negotiating tactic in recent years, particularly in highly-competitive seller’s markets where buyers know they need to sweeten their offers if they want to stand out from the pack. So what are they – and are they always a good idea? Here’s what to know about escalation clauses for buying land, including when you should (and shouldn’t) consider including one. 

What is an Escalation Clause?

An escalation clause is an addendum that some land and home buyers tack onto their offers to get ahead of bidding wars and pique a seller’s interest. They state that a buyer will increase their offer as needed to combat a competing offer, with a maximum amount designated for how high they’re willing to go.  

For example, if you’re looking to buy land in a hot market you may include an escalation clause that says you’re willing to beat any competing offers by $2,000 with a maximum of up to $20,000 more than what you’ve initially laid out. That doesn’t mean you’ll end up paying your maximum, but it does give you a potential leg up in the event that someone else is just as interested in the property

When an Escalation Clause Makes Sense

Escalation clauses can be helpful in land real estate, but they’re not always necessary. Instances where you may want to consider one include:

  • When you’re placing an offer in a strong seller’s market
  • When you’re bidding on a high-demand property
  • When you want to make sure your offer stands out

Keep in mind that just because you’re willing to pay up to a certain amount for a piece of land doesn’t mean you’ll be able to get financing to fill in the gap. If your escalation cap is higher than the appraised value of the property, plan on having enough cash on hand to cover it, rather than relying on a land loan. 

When You Shouldn’t Include an Escalation Clause

Just because a piece of land seems perfect for your needs doesn’t mean that it warrants an escalation clause. Think of these types of clauses like a strategic boost, rather than a must-include for every offer, and consider leaving them out in situations where:

  • You’re unlikely to be facing a lot of competition for a property
  • You’re already bidding at the top of your budget
  • The listing price is well-aligned with a property’s true market value

Before committing to an escalation clause, talk to your real estate agent or land REALTOR to determine whether it’s a smart move. They may want to check in with the seller’s agent to ensure they’re accepting escalation clauses. They may also advise you against one based on their unique market insights. 

Ultimately, escalation clauses have their benefits, but that doesn’t mean they benefit all land buying situations. Be strategic about how and when you use them, and never pay more for a property than it’s worth just to beat out other buyers 

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