In Wyoming’s competitive real estate market, buyers are looking for every advantage they can get, and escalation clauses have become a go-to strategy for winning bidding wars. But as you probably know, these clauses walk a legal tightrope.
This month, we’re breaking down what escalation clauses are, why they’re used, and how to keep them legally sound.
What Is an Escalation Clause?
An escalation clause is a contract provision that allows a buyer to automatically increase their offer if the seller receives a higher competing offer.
Example:
“Buyer agrees to pay $5,000 more than any competing bona fide offer, not to exceed $450,000.”
It’s meant to strengthen the buyer’s position without overpaying upfront.
Why Escalation Clauses Can Be Risky
Escalation clauses seem simple, but without legal clarity, they can lead to:
- Disputes over what qualifies as a “bona fide” offer
- Disclosure issues between buyers and sellers
- Appraisal gaps and financing complications
- Ethical gray areas for agents and brokers
- Offers unintentionally being escalated beyond budget
Best Practices to Protect Your Client (and Yourself)
As a real estate attorney, here’s what we recommend for agents using escalation clauses:
- Get it in writing with precise terms
Include the escalation amount, cap, and what documentation the seller must provide (e.g., a full copy of the competing offer). - Ensure transparency
Work with the listing agent to confirm what will be disclosed and when. Surprises can lead to claims of bad faith. - Flag the appraisal risk
If the escalation raises the price significantly above list value, the home may not appraise potentially derailing the deal. - Make sure your buyer can actually afford the escalated price
Include language that ties escalation to loan approval or cash reserves. - Involve a real estate attorney before submitting
We can help draft or review clauses to make sure they’re enforceable and protect your buyer from unexpected liability.
Need Support? We’re Just a Call Away.
If your client is considering an escalation clause or if you’re on the listing side and receiving one, our team can help you assess the legal risks, keep the deal clean, and protect your license.
This is not legal advice, instead this information is provided for educational purposes. If you have questions concerning legal matters, whether general or specific to an issue, seek legal advice from a licensed real estate attorney.