Escalation Clauses: What Are They?

Added: 2026-05-19

[00:00:09][music] >> Happy front porch Friday. Okay, today we are going to talk about escalation clauses. What is an escalation clause?

[00:00:17]So glad you asked. An escalation clause is when you as a buyer agree to pay more money than the highest bidder on a property. So obviously it is usually used when there are multiple offers or you believe that the home will have multiple offers. So the benefit to an escalation clause is that you as the buyer believe that you did not pay more than you had to pay for a home. The way an escalation clause is written is something like this. Buyer agrees to pay $2,000 more than highest bidder on a property not to exceed the highest price you're willing to pay. So if a home is listed at 400,000, you might write in the purchase and sale agreement that you'll pay 400,000 but then in a special part of the contract you would write this kind of language that says, "I'll pay actually up to 420 but not more than $2,000 more than the other guy is willing to pay." As a buyer you feel like you won. "Hey, I'm willing to pay 420,000 for your $400,000 house but only if somebody else puts an offer in at 418."

[00:01:29]As a seller you might feel differently.

[00:01:32]So sellers sometimes feel like it's sneaky and they don't like sneaky. But even if the seller thinks, "This is business. It's not sneaky." They still may say, "Yeah, but if somebody else liked it solid at 418, maybe I'll try and get 420 out of that guy cuz he went hard after my house at 418. And this 420 guy, he just wrote down 400." In that instance the seller might counter to the 418 buyer at a higher number, and in fact, that buyer would likely purchase the home. Alternatively, what the seller might do is counter to the escalation buyer and say, "Hey, you've shown your cards. You've said you'll pay 420 to buy for my house. I'm going to ask you to pay $420,000 because I can counter anything I want to counter to anyone." So, guys, I love a good strategy like the next guy. It is so much fun. Just weigh out all the consequences, good and bad, before you play these kinds of games, and see if you really think it actually will benefit you. Happy Friday, and I hope you have a great weekend.