Builder “Materials Escalation Clause”

[Brandon Galloway]

Question for Realtors or anyone who has recently bought a home in this market. Have your clients been stung by an escalation clause? I am looking to go under contract with a Pacesetter home soon and was advised there’s a materials escalation clause. I’m wondering if anyone has actually had their contract price escalate during the middle of the build? Too my surprise most builders I’ve spoken with don’t have an escalation clause so I was surprised when Pacesetters told me they did. 

[Eric Winkler]

Another great question to ask the builder, or especially folks that have worked with the builder (brokers, realtors, etc) would be how many starts they have had as well as how many completed projects in the last year or so.  Of these - how often was the escalation clause executed?  Many builders have the escalation clause to protect themselves as nobody wants to see the builder go under - this would mean nobody wins.  Even in these times with volatile prices, labor shortages, etc etc I have seen many builders with escalation clauses not having to execute them because they budgeted appropriately.  Many builders are budgeting on price projections 6 or so months out (depending upon supply chain, permitting, etc) where you are and don't have to execute the escalation.  As with all investments - due diligence when selecting the builder is key!