Escalation
You are going to hear a lot more about escalations in the months (years?) to come. Our market continues to evolve competitively and the techniques it takes to win will morph to match those of our urban neighbors. Historically in the Walla Walla Valley, there was no need to use an escalation but market conditions are increasing their popularity. Concurrently, several brokerages in the area have made an explicit point to ban them.
So what is an escalation and how do savvy buyers utilize it when making an offer?
When we make an offer, it’s for a set price — for example, $800,000. Let’s say that you as the buyer would be willing to pay more than that, but only if you knew there was sufficient competitive interest and the resulting price will go higher. In that case, you might be willing to escalate as high as $850,000. In your offer you might agree to do this in increments of $5000.
Does this mean there is a bidding war back and forth between yourself and another party? Not exactly. There are rules about the other offer that invokes the escalation portion. To be clear too, following those rules does not mean that you’ll pay the top amount of your escalation. For example. Let’s say a competing cash offer came in at $800,000 — your offer would automatically increase to $805,000. If another similar offer came in at $825,000, your offer would escalate to $830,000. i.e., $5,000 increments above your competition, with a max price ($850K) stated.
While these types of offers are common in other markets, there are some challenges in the Walla Walla area:
Some brokerages actively discourage their agents from presenting offers with escalations.
Because they have been used infrequently in the past, some agents are inexperienced with how they work and how to correctly calculate the math.
Many listing agents will encourage their sellers to counter back at the highest number rather than honor the escalation.
I won’t hide my personal feelings on this: These three challenges are poor form on the part of agents. Too many agents use an escalation to volley two offers against each other until a cap out — this is explicitly not the intended way to invoke an escalation. Counter offering back to a buyer at the escalation cap is just price gouging the buyer and acting in poor faith. Brokers that are actively discouraging their sellers from accepting an offer that contains an escalation are not acting in the best interests of their clients.
An escalation is just one of the possible techniques we can use to craft an offer. It isn’t appropriate in all cases, but it’s a powerful tool where buyers are at a disadvantage in a market that doesn’t understand how to use them effectively. As buyers continue to look for competitive advantages, expect to hear more about them.
If you have questions about how escalations work, or savvy strategies and tactics for purchasing or selling your Walla Walla Valley-area home, don’t hesitate to reach out. I’m a licensed Realtor in both Washington and Oregon. (509)540-5027 | jeff@jeffstrickler.com