Texas Escalation Clauses & Austin Real Estate

What is an Escalation Clause?

An escalation clause is a contract provision where the buyer offers one price (which is lower) but stipulates that they will increase this price by some amount if another, higher offer is received, typically with some price cap.

Sample Escalation Clause:

Buyer offers to pay $____ for the home, but if the seller receives a bona fide offer that is higher, buyer will increase the price to $____ above the amount of the other offer.
In most instances, we do not recommend adding an escalation clause to your contract. Why?
  1. They are not the norm in our market

    Escalation clauses are the norm in many markets, which means that listing agents & sellers in those markets understand and expect them. In Austin, escalation clauses are not the norm. This means that many listing agents & sellers are skeptical of this unfamiliar provision. Because of this, escalation clauses can actually work against you if you are competing with a comparable contract with standard terms.
  2. The Texas Real Estate Commission (TREC) warns against them

    TREC has instructed agents & brokers specifically not to enter escalation clauses into special provisions & instructs that any escalation clause must be written by an attorney. Many TREC licensed instructors warn against using an escalation clause under any circumstance. This can cause listing agents to be even more skeptical of these clauses, which can work against you in a competitive situation.
  3. They are contractually ambiguous

    Most escalation clauses require that a "higher bona fide offer" exist in order for the contract to escalate in price. The problem is that "bona fide" can be up to interpretation. Texas is unique that most contracts contain an option period and a seller or listing agent could ask a friend or relative to submit a higher-priced offer with an option period. At that point, a bona fide offer has been presented and the escalation clause increases the price of your offer to that amount.
  4. They can communicate indecisiveness

    Sellers & listing agents want the highest offer & best terms in a contract that is likely to close. By offering a lower amount that can escalate to a higher amount, some people interpret that you aren't decisive or sure of your offer price. You reluctantly will pay a higher amount, but you don't really want to. This can also make a seller or listing agent skeptical of your offer.
 

What Do We Recommend?

Sellers & listing agents want to work with the highest price offer, with the tightest terms, that will close. Unfortunately, a "magic bullet" (other than price & terms) doesn't exist. We recommend that you be very thoughtful about the price that you are willing to pay for any property. That price should be one that allows you to "sleep well". If you win the property, you'll be elated, but if you don't win the property, you won't have any regrets.  

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As first time home buyers, we had a fantastic experience with Sally. She was incredibly knowledgeable and reliable, meeting with us multiple times to ensure we found the right property. Her expertise and friendly approach made the process smooth and enjoyable. We highly recommend her to anyone looking for a great real estate agent.

I can’t say enough nice things about Crystal Hirst, our agent from Bramlett Real Estate. She worked hard and tirelessly (does she ever sleep?) to make our selling experience as painless as possible. She was always available to negotiate on our behalf or answer our multitude of questions. She kept us in the loop constantly; her communication skills are phenomenal. If I could give her 10 stars I would!

I am grateful for Shara’s help in selling an inherited family piece of property in the panhandle. There were lots of stall times in the transactions, and there were four co-owners that owned part of the property. Shara consistently stayed on top of all the issues, and we recently were able to sell the property. There were several times when I wondered if the transaction would ever happen. Shara helped make that happen.

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Shara was so helpful, a fantastic realtor, and a friend to us during this whole process. Buying in this market was a complete learning experience for my husband and me and Shara helped us throughout from connecting us immediately with a mortgage broker to get our nances in order, showing us homes in various locations with various price points to even helping us with closing details and beyond by recommending contractors to work on our new

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