This one is for all the naïve buyers and sellers out there who think an escalation clause is a good idea. We’re not trying to shame you or say you’re wrong, but let’s just tell it like it is. It’s wrong for most residential contracts. That’s right, I said it.
An Escalation Clause is wording in a contract that states the potential buyer is willing to go above a certain amount. For example, a buyer may agree to pay $1,000 more than the next highest offer received by a seller.
An escalation clause is basically designed to strengthen a buyer’s offer in a multiple offer situation. In theory, it is fairly simple. The buyer offers a certain price for the property, but if the seller receives another offer that is higher, this buyer is willing to increase their offer up to a point. Escalation clauses are a tactic used by some buyers to make their offer more appealing and ensure the seller will choose their offer.
It might sound like a good idea for a buyer trying to win in a bidding war and an even better idea for the seller looking for the highest sales price. Sellers welcome buyers willing to pay more than anyone else. So why does the Texas Association of Realtors strongly discourage the use of escalation clauses? Why are they frowned upon by so many real estate industry leaders?
Let’s dive deeper. I’ll get my swimsuit.