By setting a clear cap and providing real offers, escalation clauses protect you from paying more than you should in bidding wars.
How do you make sure you’re not overpaying for a home when another buyer suddenly appears? That’s the big question most buyers face when the property they’ve been eyeing suddenly gets competitive. The good news is that there’s a smart way to handle it without blowing past your budget: use an escalation clause.
Recently, we worked with buyers interested in a property that had been sitting on the market for weeks without activity. Just as they were ready to write an offer, another offer came in. Naturally, the question came up: How can we be sure we’re not overpaying?
"An escalation clause ensures you never pay more than you’re comfortable with."
How do escalation clauses protect buyers in bidding wars? An escalation clause is a contract term that lets buyers start with a lower price, essentially their minimum, and then automatically increase their offer if another competing bid comes in. Importantly, the buyer sets a cap so they don’t go higher than they’re comfortable with.
• If no other offers appear, the buyer pays the initial, lower price.
• If another offer does appear, the buyer’s offer escalates just enough to beat it, up to their maximum cap.
For example, in this case, the buyer’s escalation clause went up to $1,170,000, meaning they secured the property for less than the $1,180,000 they were originally planning to offer outright.
How do buyers know the escalation was triggered? Buyers often ask: How do I know the escalation was legitimate? The seller’s agent must provide a copy of the competing contract that triggered the escalation. That way, the buyer sees proof that the price increase was based on a real competing offer, not just seller speculation.
This transparency helps ensure the property is worth the escalated price since it reflects what another buyer was actually willing to pay.
Some sellers won’t accept escalation clauses and prefer a clean “best and final” offer. But when allowed, they’re a smart way to stay competitive without overpaying, keeping pricing honest and tied to real market demand.
If you have questions about how escalation clauses work or whether they’re the right move for your situation, feel free to reach out at (703) 286-9771 or [email protected]. I’d be happy to walk you through the details.
