Escalation Clause Can Win Your Dream Home—but at a Cost

Homebuyers in competitive markets are sometimes advised to write an escalation clause into their offers. The terms may vary, but in essence, the buyer agrees to beat any offer above theirs by a certain amount, often up to a certain limit. This can, for example, turn a $500,000 offer into a $515,000 offer, if another buyer offers $510,000. In theory, this strategy is useful if you want to remain in contention for a home without pushing all your chips in at the start of negotiations. But despite some protections, there are still potential downsides to telling a seller that you have more to spend than what you’re first offering. Plus, some experts say there are ways to make a compelling, winning offer for a home besides offering the most money. The case for escalationAn escalation clause allows a prospective buyer—with a clear head, rather than in the middle of a bidding war—to both make it known that they’re willing to go higher with their offer, as well as set a ceiling if they so choose. “Escalation clauses can be a great tool to use when executed properly,” says Veronica Peter, a real estate agent with Compass in the San Francisco Bay Area. “It is particularly advantageous when yo...