In situations where there are multiple offers on a property, contracts are often drafted to include an “escalation clause” which is designed to have the purchase price automatically increase to a certain amount above any higher offer, up to a specified limit. There is no standard language for these clauses, and it seems that the general practice is to include them in Section 9 under “Other Conditions”. Suggested language could be as simple as: “Buyers hereby agree to increase their offer by $____ over the highest offer received (notwithstanding any Seller concessions) by Sellers from any other buyer(s), but not to exceed a maximum offer of $__________. Seller shall provide Buyer’s agent with satisfactory proof of such competing offers.”
Several common issues that arise when an escalation clause is used warrant mention. First, you will want to be clear whether or not the other offer(s) take into account any seller concessions or closing cost credits. Second, you will want to be careful to include any verbal offers that have not yet been reduced to writing, for example if the seller asks a competing buyer for their “highest and best” offer. In situations where there is a mortgage contingency, you will also want to clarify how the increased purchase price affects the deposit(s), additional cash to be brought to the closing and the amount of the mortgage. For example, will the ratio between the deposit(s), cash at closing and the mortgage remain the same, or will the increase in the purchase price be entirely added to the deposit(s), cash at closing or to the loan amount. Finally, you will want to provide that the escalation ends once a contract has been signed with a final purchase price.