What are the pros and cons of using an escalation clause in a competitive market?

1 Pro: You can show your interest and flexibility

An escalation clause can signal to the seller that you're serious about buying their home and that you're ready to negotiate. It can also show that you have some room in your budget and that you're not lowballing them. This can give you an edge over other buyers who might have a fixed or lower offer, especially if the seller is looking for a quick and smooth transaction.

2 Con: You might overpay or reveal your maximum price

An escalation clause can also have some drawbacks, such as potentially paying more than the home is worth or exposing your maximum price to the seller. If you use an escalation clause, you should have a cap on how much you're willing to increase your offer, and make sure it's based on the market value and appraisal of the home. Otherwise, you might end up overpaying or getting outbid by someone who can go higher. Moreover, if you reveal your maximum price to the seller, they might use it against you in the negotiation or ask for more concessions.

3 Pro: You can avoid a bidding war or multiple counteroffers

Another benefit of using an escalation clause is that it can help you avoid a stressful and time-consuming bidding war or multiple counteroffers. An escalation clause can automatically adjust your offer to match or exceed the highest offer that the seller receives, up to your cap. This can save you the hassle of going back and forth with the seller or losing the opportunity to buy the home if someone else makes a better offer.

4 Con: You might face legal or ethical issues

An escalation clause can also pose some legal or ethical challenges, depending on the state and the situation. For instance, some states require that the seller disclose all the offers they receive to the buyers who use an escalation clause, while others don't. This can create confusion or conflict among the parties involved, and potentially lead to lawsuits or complaints. Additionally, some sellers or agents might not accept or honor an escalation clause, either because they don't understand it, they don't trust it, or they prefer a simpler or more straightforward offer.

5 Pro: You can customize and control your offer

An escalation clause can also give you some flexibility and control over your offer, as you can customize it to suit your needs and preferences. For example, you can specify the amount and frequency of your price increases, the conditions and contingencies of your offer, and the evidence and verification of the competing offers. You can also consult with your agent and lender to make sure that your escalation clause is feasible and realistic, and that you have the financing and approval to back it up.

6 Con: You might lose the emotional appeal or personal connection

An escalation clause can also have a negative impact on the emotional appeal or personal connection of your offer, which can sometimes make a difference in a competitive market. Some sellers might prefer an offer that has a personal letter, a flexible closing date, or a waived contingency, rather than an offer that has a higher price but a complicated clause. Some sellers might also feel offended or pressured by an escalation clause, and reject it on principle. Therefore, you should always research the seller's motivation and situation, and tailor your offer accordingly.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?