How an “Escalation Clause” Helped Me Win a Real Estate Bidding War

published Jun 14, 2023
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Credit: Photo: Sidney Bensimon; Prop Styling: Carla Gonzalez-Hart

There’s an under-the-radar strategy for landing a house you want in a hot market (or, at least, it was under-the-radar to me). You see, even though I’ve bought and sold quite a few houses, I’ve never strayed from the straightforward approach of making or receiving an offer, reviewing or making the counter offer, and repeating ‘til done (or not!). 

Waiting is hard. Buying property is a stressful and time-consuming process. Recently, though, I found myself in a real estate tsunami where I was able to get under contract on a plot of land to build on. I also listed my house for sale and managed to find a place to live while we build on that lot. During this tsunami, I had to act extremely fast and I didn’t want to miss out on this lot. Enter: the escalation clause. 

Not familiar? Neither was I. “An escalation clause is a fabulous tool that buyers can use to their benefit when making an offer on a home,” explains real estate agent Caitlin Deppeler of Keller Williams Real Estate in Doylestown, Pennsylvania. “What an offer with an escalation clause looks like is the offer’s presented just like any other offer, but additionally, there’s a clause that is going to share how high a buyer is willing to go if there are multiple offers that they’re competing against, and what increments they’re willing to go above the competing offer.”

If that sounds like an old-fashioned eBay bid, you’re not far off. Here’s what I didn’t know, at least until the first offer on my own house came in a few days later: The seller gets to see your highest bid. 

Yep, you’re showing your hand! However, Deppeler says, they can’t just look at that high bid and demand it. It takes the seller’s agent going back to the other potential buyers’ agent(s) and letting them know where the price stands. To use a poker analogy (because I kind of picture a bunch of agents in a dark room around a green felt table), if their buyer says, “I see your $5,000 increase and raise you another five,” well, the escalation clause kicks in. 

This all happens behind the scenes as far as the buyers and sellers are concerned. In my case, we were buying a fixer-upper listed at $67,900. When I looked at it on a Saturday morning, there were six other offers and a deadline of 3 p.m. on the same day. My agent introduced me to the escalation clause, so without knowing what the other offers were, my husband and I decided to go in strong but not overboard at $72,500, with an escalation clause up to $82,500. 

We went about our day and got a phone call that afternoon. It worked! With no back-and-forth or counters on either side, we’d won at $75,000! There was no need to even go all the way to our max. 

It was fortuitous that I’d learned about escalations from the buyer side, because just a couple days later, we had an offer on our own home. It came in at full ask (yay!) with an escalation going up to $25,000 over. Honestly, I was a bit flabbergasted to discover that the max bid was shared with me, the seller. 

We liked this offer on our home and wanted to take it. And while I couldn’t flat-out ask for the buyer’s highest bid, I did use that information to my advantage. I hate the whole round of inspections and re-negotiations and concessions and repair requests — like, walk-away-from-the-deal hate them. So we accepted the offer, with one caveat: We said that any concessions or repair requests less than $25,000 would not be considered. I knew if they were willing to go $25k higher, they should also be willing to absorb up to $25k in repairs on the 136-year-old house. (If they wanted more than $25k worth, certainly one or both of us would walk away.) 

While there was some pushback from the buyer’s agent, the buyer apparently didn’t balk, as we had acceptance within a couple hours.

This was a wild — and short — ride, with the time from the first showing to getting under contract at 34 hours, and no nagging fears about the dreaded inspection period. We were able to get under contract same-day on our fixer-upper purchase, so call me a forever fan of the escalation clause now.