Anyone using an escalation / escalator clause in LOIs or purchase offers?

professional profile

February 23, 2023

by a professional from University of Southern California - Marshall School of Business in North Palm Beach, FL, USA

To get sellers reconsider a potential buyer's pending offer? Of course, searchers probably would not do it unless they're certain of buyer competition, especially with broker listings. Anyone want to share a successful application of a conditional offer so sellers don't have to only respond with yes or no?



An escalation / escalator clause is a contract provision that allows for an automatic increase in the agreed-upon price offer. (Subject to other terms.)



See a competent lawyer if you’re considering something like it (conditional offers/contracts).



Lots of searchers lose opportunities to buyer competition.

Here are some tips to avoid or beat/best them: https://youtu.be/VxFZdPjmLMg

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Reply by a professional
from Villanova University in West Chester, PA, USA
Hi ^redacted‌ - we see this more in the auction space, but it's certainly an option if there's significant interest and a business is calling a last and final bid of offers.
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Reply by a professional
from Villanova University in West Chester, PA, USA
Absolutely! An auction is a more formal process with timelines for diligence, initial bids, site visits and final bids. Instructions are provided by the broker, and all of the parties follow those parameters for the bidding. In an auction, the seller isn't negotiating with each interested party individually, but rather soliciting bids by deadlines and selecting the best bid, entering into an LOI and then a formal agreement. So, depending on a broker's general operating procedures, there may be similarities, but they're meant to be a different process than just listing a property. Somewhat similar to listing real estate for sale versus selling it at auction.

The market has been very competitive, which is an environment where those types of clauses are more prevalent and successful. Good indications of interest and letters of intent have confidentiality clauses that are automatically effective upon acceptance of the transmission, and we include those in our email providing the offer as well. So, the existence of interest itself, and the offer, are entirely confidential.
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