Escalation Clauses in Iowa

Escalation clauses are allowed in Iowa, Illinois, and Wisconsin.  All three states will have their own unique form, but this can be a tool used to help write a winning offer for your buyer.

Advantages  (as a buyer or buyer's agent)

  • Potentially beats out other offers
  • Potentially allows the buyer to get the home without escalating to their 'top dollar'

Potential Problem (as a buyer or buyer's agent).

  • Shows the seller upfront what the buyer is willing to pay, or their top dollar
  • If another offer does not trigger the escalation, it is possible that the seller may:
    • Counter your offer
    • Remove the escalation
    • The counter offer will likely be at or just below the buyers top dollar

When should you use an escalation clause?

You should only use an escalation clause when:

  • You’ve talked with a listing agent and they've confirmed there are other offers
  • Your buyer is comfortable showing the seller what their maximum top dollar they are willing to pay is
  • The buyer is comfortable being in a competing offer situation

Writing an escalation clause—

Buyer to pay,  <$0,000>  over next best offers, up to a maximum net purchase price of contract to be <$0,000>.  


Net purchase price is defined as Gross Purchase price, minus Credits requested (closings costs/ pre-paids).  

IE:     

  • Contract Price: $300,000.
  • Closing costs and pre-paids requested:  $5,000
  • Current net purchase price is: $295,000

Scenario 1: An escalation is attached to the offer—

  • Will escalate $1,500 over other offers, up to max price of $307,000.  $5k of credits requested.
  • Another offer is included in the offer for $303,000 with no credits requested.
  • This offer would only escalate up to $307,000, less $5,000:
  • Net purchase price:  $302,000

Scenario 2: An escalation is attached to the offer—

  • Will escalate $1,500 over other offers, up to max price of $312,000
  • Another offer is included in the offer for $303,000 with no credits requested.
  • This offer would escalate up to $309,500.  
    • $309,500 price, less $5,000 = $304,500 net. Which is $1,500 over the next best offer.

Scenario 3: An escalation is attached to the offer—

  • The offer is $300,000
  • Will escalate $1,500 over other offers, up to max price of $309,000
  • Another offer is included in the offer for $305,000 with no credits requested.
  • This offer would escalate up to $306,500
    • Note, the other $2,500 ($309,000 - $306,500) is not able to be capitalized on in this situation
    • Unless, you counter back and remove the escalation.