In a nutshell:
Essentially, an escalation clause allows a home buyer to say they will pay X price for the home, but if the seller receives a higher bid, the buyer will increase their offer Y amount more than the highest offer received, as long as it does not exceed their ceiling cap.
Here’s an example of a typical escalation clause:
The buyer submits an offer at $500k with an escalation clause that states the buyer will pay $5,000 more than the highest offer as long as the purchase price does not exceed $520k.
Are escalation clauses common practice?
Escalation clauses are most common in competitive markets when buyers are fairly confident that the property in question will receive multiple offers.
What if I’m the only buyer to submit an offer?
This is when things can get tricky. By including an escalation clause in your offer, you are essentially showing the seller’s exactly how much you are willing to pay. Therefore, the seller’s agent will more than likely submit a counter offer at a higher price, leaving you with minimal negotiating power.
Does OL recommend escalation clauses?
No. These types of offers are prone to dispute and their enforceability can be called into question under some scenarios.
We'd recommend writing a conventional offer with the intent of exchanging counter-offers.