Escalation Clauses in Texas

Posted Dec 8, 2021
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Escalation clauses are technically allowed in Texas if drafted by an attorney (but TREC advises against them.) That said, we almost always advise against using an escalation clause. Here’s our company policy regarding escalation clauses.

Problem 1 – contractually worthless
“Buyer to pay $1000 above highest received offer up to $501,000.” Great, I (listing agent or seller) will ask my BFF Greg (who’s fully qualified) to submit a contract for $500k. Done. $501k from buyer and contractually compliant. Just silly and worthless.

Problem 2 (Big problem) – Not the norm in the Austin market
Escalation clauses are the exception, not the norm in the Austin market. Because of this, you’re introducing something into the transaction that’s not easily understood, which is hard to explain, and which can certainly be misinterpreted. When you present an offer, you want to present it as clearly as possible. You don’t want to run the risk that the listing agent will misunderstand and/or explain your offer poorly to their clients.

Problem 3 – shows that the buyer (or agent) likes contract loopholes
Escalation clauses broadcast that the buyer (or agent) thinks they’re smarter than everyone else. They think they can put this magic clause in and they’ll beat out all of the other buyers. (But no more than they have to pay. Man, they’re smart!!!) This is the same personality type that will be a PITA during inspection, who will try to wiggle out of the contract when it doesn’t appraise (even though they signed a waiver), or any number of BS-ey things that are just a pain to deal with. We’re looking for the best deal for our clients that will close so we generally stay away from shady buyers.

Problem 4 – shows that the buyer doesn’t really want to pay this much
“Offer is $475k but buyer will pay $1000 over the the highest offer up to $501k.” How much do you think the buyer really wants to pay? Do you think there’s a higher likelihood that this buyer will terminate than someone who gives a clean $500k offer? Do you think the escalation clause buyer will be a bigger pain during option? Again, we’re looking for the best deal for our clients that that will close, so we generally recommend against escalation clauses.

When should you use an escalation clause?
You should only use an escalation clause when you’ve talked with a listing agent and that agent thinks they’re a great idea. If the listing agent loves them, then give the listing agent what he/she wants. Otherwise, always advise your client to put their best foot forward with a clean offer.

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It was a pleasure working with Alex Ellis during our search for a lot in the Austin area. Alex was very knowledgeable of the Austin market and surrounding areas, and always quick to respond whenever we had any questions or concerns. Alex always kept our best interests in mind and helped the entire process go as smoothly as possible. I look forward to working with him for many years to come!

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Jeremy K

I worked with Jeremy Vandermause to buy my first home. Jeremy was so patient throughout the process (which I definitely dragged out as I gathered all the facts). He consistently sent me homes I was interested in and was eager to show them off, and on the odd occasions where I found one he hadn’t already seen he always made himself available to walk through with me. He was very helpful in those walkthroughs pointing out home features I would have missed, or providing context on neighborhood. As a native Austinite, he definitely knows the history and cultural fabric of the city and each neighborhood. I started with close to zero knowledge of the home-buying process and Jeremy walked me through every step with clarity and patience. So excited about the home I now own! Plus, he’s just a legit cool dude. I always really enjoyed our conversations and could tell from the start he was someone worth knowing in Austin

Caitlin Henson

I highly recommend working with Alex Ellis and am so thankful he helped us last year to close on a lot for our future dream home. Alex is thoughtful, takes time to explain the process, and goes the extra mile to communicate. He was an especially valuable thought partner during the negotiation to close the deal. I look forward to partnering again on future transactions!

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