Escalation Clause: What is it and When Should You Use it?

Have you found the house of your dreams?  Is the house a steal?  Is the house so perfect that you want to make sure you get it?  Has your Realtor let you know that there are other offers on the table?  If so, you may want to consider an Escalation Clause.

Escalation Clause


An escalation clause is a way to safe guard you against other offers.  An escalation clause allows you to automatically raise your offer price if theirs is a higher offer.  For example, if you offer $229,000 for a house and someone else offers $229,500 your offer would increase by a preset increment.  

You can choose what increment you want to raise your offer to.  You may want to increase your offer by $500 above any higher offers.  Keep in mind that the offering price is not the only factor when considering offers.  Talk to your Realtor for more clarification on strengthening your offer. 

Limiting your Escalation Clause
Another aspect to consider with an escalation clause is a limit.  If you want the house, but are only willing to go to a certain price, you may want to limit how high the offer will escalate.  Using the previous example, you may want to cap your escalation clause at $235,000.  This will protect your offer from all other offers less than $235,000.

Caution
The escalation clause is best used when offering full price on a house.  If you make an offer under asking price but have an escalation clause for $5,000 higher than asking price, you are telling the seller that you can and will go higher.  Naturally, if there are no other contending offers, the sellers will counter at asking price.