Escalation clauses are a method some buyers use to automatically increase their bid on your property in the face of a competing bid.
Remember that escalation clauses are risky and should never be taken lightly. You can judge if you should accept an escalation clause by asking yourself these questions:
Is The Buyer’s Offer Genuine?
If the buyer is not serious about purchasing your property and has bids in elsewhere, it is not wise to accept an escalation clause. This is especially true if their bid offer is low and they are not pre-approved by a lender.
In short, the buyer must be serious about their purchase of your property if you are considering accepting an escalation clause.
The seller should actually be able to pay the amount they are bidding for.
Do You Want To Continue Negotiations?
If you accept an escalation clause, know that you will not be able to issue counteroffers to other buyers or negotiate with the highest bidder. When a buyer gives you an escalation clause, you know exactly how much they are willing to pay for the home.
Was The Clause Drafted Correctly?
In order for an escalation clause to benefit all parties, it must have been drafted correctly. For example, it should have a clear cap on how much the buyer is willing to put towards the purchase or else you could get stuck in the middle of a bidding war.
Your realtor should not pressure you to accept an escalation clause. If you feel uncomfortable, you are well within your rights to find another realtor.