What is an Escalation Clause, and Do You Need One in Your Offer?

If you’re like most people, you know that homes are selling quickly in Baltimore and Howard Counties – and that in some cases, buyers are engaging in bidding wars. For some people (particularly those who are fairly certain they’ll end up in a bidding war over their dream home), writing an escalation clause into an offer is a smart, time-saving choice. Here’s what you need to know.

An escalation clause is text in a real estate offer that says you’re willing to outbid others – up to a certain point – in the event of a bidding war. It typically includes a cap (an amount you’re not willing to go over).
Your escalation clause may say something like, “Purchase price shall increase by $1,000 more than any other bona fide offer…” It should also include an end date, such as “on or before February 26.” Finally, your escalation clause should include the maximum amount you’re willing to pay for a home.
For example, if you’re bidding on a $500,000 home, your escalation clause may have a cap of $550,000. That means your bids will increase in a specific increment (such as $1,000) up to that point.
Related: Can you buy a FSBO with a real estate agent?

Can You Bid on a House Without an Escalation Clause in Your Offer?

You can absolutely bid on a house – and even win a bidding war – without an escalation clause in your offer. An escalation clause simply automates the process. If you’re Buyer A and Buyer B puts in a bid for $510,000, you automatically bid $511,000. This continues until Buyer B (or you, but hopefully it’s the other party) runs out of money to bid on the home.
However, if Buyer B bids $550,000 (your cap on the bidding in the previous example), your real estate agent will call you to find out if you want to keep bidding.
Related: 7 tips to sell your home as a FSBO

What Happens if You Don’t Have an Escalation Clause in Your Real Estate Offer?

Without an escalation clause, your REALTOR® will call or text you each time another party puts in a new bid. Your agent will ask you if you’d like to increase your bid, and if so, by how much.

Do You Need an Escalation Clause?

You don’t need an escalation clause. However, if you’re almost certain that there will be a bidding war and you want to avoid the back-and-forth, you can include one in your offer.