An escalation clause is a contractual provision that can be included in a real estate purchase offer to automatically increase the property's purchase price if a competing offer is received. The clause allows the buyer to offer a set price above the highest competing offer up to a predetermined maximum limit.
For example, if a buyer offers $500,000 with an escalation clause that increases the purchase price by $5,000 over the highest competing offer up to a maximum of $550,000, and a competing offer of $510,000 is received, the buyer's offer would automatically increase to $515,000. However, if the competing offer exceeds the maximum limit, the escalation clause would not apply, and the buyer's offer would remain at the original offer price.
Escalation clauses are becoming more common in competitive real estate markets, where multiple buyers may be interested in the same property. However, it's important to note that escalation clauses can have potential risks and drawbacks, so it's essential to consult with a real estate agent or attorney before including one in a purchase offer.
