What is an Escalation Clause in a Real Estate Offer?
If you’re like many people buying a home in Aspen, you already know that bidding wars are real – and that it’s possible to end up sitting on the edge of your seat hoping that another buyer has run out of money and can’t bid any longer. Bidding wars are stressful, but there is something you may be able to do to make it easier on yourself, and that’s an escalation clause. This guide explains.

What is an Escalation Clause in a Real Estate Offer?

An escalation clause is language in an offer that says yours will come out on top – until you hit your bidding cap. For example, it may say, “Purchase price shall be $1,000 more than any other bona fide offer submitted to the seller on or before December 1.”
This clause shows that you’re willing to beat every other bid on a home… up to a certain amount. For example, you may make an offer on a home listed for $750,000, but you’re really willing to pay up to $850,000 for it; in that case, your escalation clause would have language in it that says your highest bid will be $850,000.
Then, when a buyer beats your offer by bidding $755,000, your bid automatically goes up to $756,000 (or by whatever increment you choose in your escalation clause).
This continues until the other bidder (or multiple other bidders) run out of money – or until you hit the cap on your escalation clause. If your cap was $850,000 and someone bids $850,001, you’re out of the running and need to start looking for another home.
You do not need an escalation clause to bid on a home, though. It’s okay if you don’t have one, even if other people are bidding on the same house. Not having an escalation clause in your offer simply means that your agent will call you as soon as a higher bid comes in; they’ll ask you if you want to put in another bid or walk away.
Related: How to get a great deal in a seller’s market

Are Escalation Clauses a Good Idea?

In some cases, it’s absolutely a good idea to include an escalation clause in your offer – such as when:

  • You fall in love with the home and really don’t want to let anyone else buy it
  • You have more money in your budget that you aren’t offering on the home
  • You are willing to spend more on the house, up to a certain amount, because it’s the right choice for you

Sometimes escalation clauses aren’t a good idea, though. If you’re on the fence about whether you like a home enough to fight for it, it’s probably better to take your chances and decide whether to bid higher each time someone else does.
Related: How to improve your credit score

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