What is an Escalation Clause?

Building in downtown Fort Lauderdale , FL.
Building in downtown Fort Lauderdale, FL

When buying a house you have to decide what price to offer. But sometimes the offer to buy a home includes the escalation clause.

What is an escalation clause in real estate? When a property buyer uses the escalation clause, he says :” I will pay for the property XXX dollar amount. But if the homeowner receives another offer for the house, I will increase my offer by Y dollar amount up to the amount of Z”.

In order to understand this, lets look at the example with numbers. Buyer A writes an offer for the house at $100,000. Buyer’s real estate agent adds an escalation clause to an offer. In this case, if there is another offer for the house, an escalation clause will increase Buyer’s A offer in increments of $2,000 above the competitor’s offer, up to the amount of $110,000.

If there is no other offer from differnet buyer, so the Buyer A offer for the property is $100,000.

If a buyer B writes an offer of $101,000 for the seller, then buyer A offer is increased authomatically by $2,000 from $101,000 and now is $103,000.

If there is buyer C who offers $112,000 for the property, then buyer A maximum offer of $110,000 is less, and buyer C gets the property.