What is an escalation real estate contract addendum?

An escalation addendum is a specific form added to an offer, that speaks for you, the Buyer, and it says to the Seller, “We're offering X price on your house. We'd like to buy it for that initial offer price of X… BUT… if another buyer should happen to also offer X, or more, we'll BEAT THAT OFFER

Attorney Tom Olsen: We've been talking about something we've seen relatively new, and it's called an escalatory contract addendum when you're buying a piece of property. The escalatory contract addendum says that if you're selling a piece of property, within 24 hours you may be getting five, seven, ten offers on your property. If you're a buyer, that's bad news.

You've got a lot of competition out there. You don't really know what to offer, how much to offer to put you at the top of the line, so the escalatory contract addendum as a buyer, you say this, "I'm offering $300,000 for your home, but I'll pay $1,000 over the highest offer you get." If another buyer offers $307,000, you're saying, "Okay, I'll pay $308,000 for it." That's how desperate buyers have gotten to try and find a piece of property these days.

Attorney Chris Merrill: The addendum that's put in there, is this something that is now a standard? That language that you're seeing, obviously it's only added where that buyer wants that opportunity, but are you seeing that this is in multiple contracts now?

Attorney Tom Olsen: First of all, it's not part of the pre-printed Far/Bar form. This is a special addendum that you would attach to your contract getting to be more and more common. When you do this escalatory addendum, yes, you say, "I'll pay $1,000 over the highest offer that you get from somebody else, but I am going to cap it." We use the example, "They're offering $300,000 but I'll pay $1,000 over the highest offer you get, but I'm going to cap it at $310,000," for example.

Attorney Chris Merrill: Understand.

Attorney Tom Olsen: It's very much a seller's market out there these days. If you own properties, that's a great wonderful thing. Man, if you're trying to buy a property, if you're a young person trying to buy a property, man, it's a tough market out there.

Attorney Chris Merrill: It's a real challenge.