REFinBlog

Editor: David Reiss
Brooklyn Law School

July 21, 2021

Escalation Clauses in a Tight Market

By David Reiss

photo by Jeramey Jannene (CC BY 2.0)

I spoke with Business Insider about the use of escalation clauses in hot housing markets.  The article (behind a paywall) opens,

With people around the US competing in a tight housing market, many are turning to a unique strategy: escalation clauses.

Escalation clauses are meant to help buyers beat the competition for an in-demand property. When would-be buyers put an offer on a home that they anticipate will have other offers, it automatically increases the buyer’s original offer by a specified amount in an effort to outbid everyone else.

Whether the buyer is notified before a seller applies an escalation clause depends on the particular contract terms, according to David Reiss, a law professor at Brooklyn Law School specializing in real estate. Some real-estate agents encourage clients to use escalation clauses, though not every state or seller allows them.

These clauses can give you a fighting chance by allowing you to skip some of the negotiation and back-and-forth, but can be harmful in that they show sellers how much buyers are willing to spend.

Insider spoke with several home buyers who used escalation clauses to understand the risks and rewards they come with.

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