What Is Escalation Clause?
Escalation Clause: An offer term that automatically raises your price above competing offers, up to a cap.
Also called: escalation addendum
An escalation clause automatically increases your offer to beat competing offers, up to a maximum you set.
How it works
An escalation clause has three parts:
- Starting price: your base offer, say $400,000
- Increment: how much you'll beat other offers by, say $2,000
- Cap: the most you'll pay, say $425,000
If the best competing offer is $410,000, your price becomes $412,000.
Protect yourself
- Require proof of the competing offer
- Pair it with an appraisal gap limit, since a higher price makes a low appraisal more likely
- Set a cap you can afford in cash to close and payment
Good to know
Some sellers and listing agents don't accept escalation clauses and will ask for your best and final offer instead.