Just what are escalation clauses? Well, the root word means "up". Let's clarify how this could happen.
You've entered into negotiations in either a hot market or with a builder in an otherwise normal market. You've asked the price and one of several things have happened. The builder has given you a firm price, the builder has not committed himself to a price or they have given you a price with an increasing cost clause - whereby you may know or you may not be aware of its existence. Some builders are upfront about it and say "Cost plus x percent".
What this means in essence is that the builder has the full ability to change the total purchase price at any time. I have never seen them charge you less than the initial price.
Would you give someone your wallet with all of your credit cards? How about giving someone a signed blank check? NO? Then why on earth would you ever sign an agreement like this?
What's the big deal? For starters, if the price goes up (which it usually does when someone else has their hand in your wallet) you may no longer be able to qualify for the mortgage on the home. Meaning that as you have signed the agreement and you've bought the house and you've committed to a mortgage, you will be in dire straits and a very real possible financial crisis.
My opinion on escalation clauses or increasing cost clauses? Long and short = don't do it, period.
