An escalation clause is a written stipulation stating that a buyer is willing to pay a certain amount above the highest verifiable competing offer in order to secure acceptance. In theory, it makes a lot of sense. If a seller believes you’re willing to outbid any competing buyer, they may be more inclined to work with you before making a final decision and give you the opportunity to come out on top. Buyers will typically submit a strong initial offer, along with language stating they are willing to pay a specific amount above the highest competing offer, up to a maximum purchase price. For example, a buyer may offer $1,800,000, while stating they are willing to pay $5,000 above the highest verifiable offer up to a cap of $2,000,000. I have also seen buyers write escalation clauses with no cap at all, implying they are willing to pay a set amount above any competing offer regardless of the final price.
The complication involved with either structure is that they typically create an additional negotiation step. In order to finalize the purchase price, the seller usually has to issue a counteroffer reflecting the escalated amount, and a binding agreement is only created once the buyer signs that counter. But there is no guarantee the buyer will ultimately agree to move forward at the escalated price, so the clause often functions more as a “right of first refusal” than a firm commitment. This can create uncertainty for sellers and potentially delay the process while other strong offers remain on the table.
Another potential drawback – especially with capped escalation clauses – is that buyers are effectively telling the seller, “We’re willing to pay this amount, but only if we absolutely have to.” I recently received an offer on one of my listings with an escalation cap that was $300,000 over the asking price, and it was difficult to explain to my sellers that the buyers were not actually offering that amount outright. Instead, they were using the cap to signal a high level of interest in the property.
Because of this, it’s always important for you agent to have a conversation with the listing agent ahead of adding an escalation clause. Some listing agents specifically request that buyers avoid them entirely in an effort to streamline negotiations and create cleaner, more straightforward offers. That said, if the listing agent and sellers are open to escalation clauses, they can sometimes provide buyers with one final opportunity to compete on price. Ultimately, the key is understanding how the sellers are likely to react before deciding whether an escalation clause is the right strategy for your offer.
Kari Carson
DRE #01903828
(818) 424-5537
Neighborhoods Served: La Canada Flintridge, La Crescenta, Montrose, Glendale, Pasadena, Eagle Rock, Highland Park, Greater LA area