That Escalated Quickly: Pros and Cons of Escalation Clauses in Purchase Agreements

Louisiana REALTORS • July 7, 2021

By: Patricia B. McMurray, JD, Melissa M. Grand, JD, and Derbigny Daroca, JD
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

450 Laurel Street, Chase Tower North, 21st Floor

Baton Rouge, Louisiana 70801


The real estate market has become increasingly competitive, especially in the aftermath of the COVID-19 pandemic. One tool to compete in this market that REALTORS® are discussing with their clients is using escalation clauses in a buyer’s offer to purchase real estate. 


This article discusses escalation clauses and the potential impact on buyers, sellers, and their agents in real estate negotiations. 


While escalation clauses seem attractive in a fast-paced market, the potential risks may be greater than the rewards. In fact, some states, like Texas, have legislatively prohibited escalation clauses. As of the writing of this article, escalation clauses are untried in Louisiana—there are not Louisiana cases, legislation, or regulations interpreting escalation clauses.


So, while there may be some benefits, as explained below, it is important that REALTORS®, buyers, and sellers understand all of the potential pitfalls of escalation clauses, and that the risks may sometimes outweigh the possible rewards. 


  • What Is An Escalation Clause?

    An escalation clause or “escalator” is a provision in or an addendum to a purchase agreement, that allows the buyer’s offer to increase (escalate) the purchase price they have offered up to a maximum amount in the event that the seller receives another offer. 


    For example, Zach makes on offer on Mia’s house for $250,000 and adds a clause to his purchase agreement escalating Zach’s offer to $100 more than any offer over $250,000, up to a maximum purchase price of $280,000. Charles then offers $260,000 for the house, which automatically escalates Zach’s offer to $260,100


  • What Should Be Considered When Drafting An Escalation Clause?

    The following terms are typically included and defined in an escalation clause:

    • the “escalating factor”: the amount in excess of a higher, competitive offer; 
    • the “cap” or “ceiling amount”: the maximum limit or amount the buyer is willing to offer for a purchase price;
    • “multiple escalations”: the buyers acknowledge that there may be multiple escalations, up to the cap or ceiling amount. 

    The escalation clause should contain detail regarding the escalation increase procedure(s).  Example options include:

    1. the loan amount provided for in the offer shall remain the same, and the buyer shall pay any increase in cash at the time of settlement; 
    2. the down payment amount provided for in the offer shall remain the same, and any increase shall be added to the loan amount;
    3. the loan amount provided for in the offer shall automatically increase to be ______% of the new sales price of the property; or
    4. the loan amount shall not exceed $________ and the buyer shall pay any amount of the increase in sales price which is not included in the loan amount in cash at the time of settlement. 

    Escalation clauses also include provisions for termination of the escalation clause, a disclaimer that the buyer holds their agents and their brokers harmless with regard to the negotiation of the sales price, and the procedure for accepting a counteroffer from the seller.  

  • What Are the Benefits of Escalation Clauses?

    Escalation clauses have gained popularity since the COVID-19 pandemic has made the real estate market even more competitive. 


    Buyers who want to ensure their offer is a winning one are making more use of escalation clauses because it can be a helpful tool when buyers know there will be multiple offers or when the buyer expects to pay an increased price. In the event of a bidding war, a buyer might be inclined to use an escalation clause to help secure the sale. Sellers who want to minimize back-and-forth negotiations appreciate the immediate increased off that escalation clauses inherently provide.  

  • What Are Potential Drawbacks of Escalation Clauses?

    Full disclosure of a buyer’s maximum offer can be a strategic drawback for a buyer in their negotiations with a seller. Buyers should also consider that an escalation clause on the initial offer in a multistage negotiation could be strategic drawback if that offer is disclosed to other potential buyers. Additionally, sellers may have little incentive to lower a potential counter demand after knowing the maximum the buyer is willing to pay. Buyers should be aware that each scenario is different, and there are incentives and drawbacks to limiting the ability to negotiate their offers. 


    Sellers also face risk in receiving offers with an escalation clause. Escalation clauses do not guarantee a better offer for sellers. Offers from other buyers may be more advantageous to a seller, even if the purchase price is lower (i.e., cash offers, no inspection, less seller contribution to closing costs). When discerning between different offers, some with escalation clauses, some without, sellers must carefully evaluate which offer is truly best. 


    Another potential disadvantage of escalation clauses for sellers is that a buyer may not make an offer if he knows a previous offer includes an escalation clause. In a recent article, the National Association of REALTORS® (“NAR”) analyzed how buyers are coping in a highly competitive housing market. NAR discussed that among reported buyers who declined to make an offer on a house, 35% of those reported buyers did not make an offer once they knew there were already multiple offers on the property. NAR explained that this could be because the buyers could no longer make an offer that was below the listing price or the buyers anticipated escalation clauses. 


    If the escalation clause is drafted poorly and does not require that the competing offer be verified, the buyer risks the seller or others on the seller’s behalf manipulating the purchase price with sham offers to drive the price up. Further, the buyer risks an expensive surprise if the escalation clause fails to include a maximum purchase price amount. The careful drafting of the clause for a thorough analysis of probable outcomes and strategies in the current market is critical to preventing unintended outcomes.

REALTORS® should discuss the pros and cons of escalation clauses with their clients. If an escalation clause is used, including a disclaimer is prudent for risk management. Buyers and sellers should consult their real estate agents and attorneys when contemplating offering and/or accepting escalation clauses to minimize risk and maximize their opportunities. 


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2026 Legislative Session Scoop - Week 7 Recap

By Louisiana REALTORS® • April 24, 2026
Week seven of the 2026 Regular Session was one of the most active weeks yet for legislation affecting the real estate industry. Louisiana REALTORS® remained heavily engaged as lawmakers advanced bills dealing with property disclosures, appraiser liability, rent regulation, insurance, blight, redevelopment and other issues that directly affect real estate professionals, property owners and consumers across the state. One of the most important bills this week was HB 1166 by Rep. Kim Carver , which would require disclosures for vacant residential property. The bill was reported from House Commerce with amendments on a 14-0 vote and then amended on the House floor, ordered engrossed, and passed to third reading. Louisiana REALTORS® testified on the bill in committee and worked closely with the author to better posture the legislation. Amendments advanced by our team were accepted by the author, helping improve the bill while preserving a practical disclosure framework that increases transparency without creating unnecessary confusion in the transaction process. Another closely watched issue this week was consumer-fee disclosure legislation. HB 617 by Rep. Mandie Landry moved this week, advancing from House Commerce and then the House floor, while HB 580 , another hidden-fee disclosure bill touching real estate transactions, remains pending. Louisiana REALTORS® is opposed to these measures in their current form to the extent they apply to real estate professionals because they are not well-tailored to the realities of real estate transactions, where many costs are negotiated, variable or controlled by third parties. Louisiana REALTORS® testified in opposition to the bills we oppose and is actively working with the author to better posture the legislation and remove real estate professionals from its scope altogether. On HB 472 by Rep. Alonzo Knox , the rent stabilization bill, the author is expected to try to bring the measure back before the committee next week with amendments. Even so, Louisiana REALTORS® remain opposed to the bill on principle. Price gouging is already illegal under existing law, and government-imposed rent regulation is not the right answer to housing affordability challenges. Louisiana REALTORS® testified in opposition to the bill and continues to oppose the measure because policies like this risk discouraging investment, reducing housing supply, and creating further market distortions rather than solving the underlying problem. HB 468 by Rep. Troy Hebert , which regulates the wholesale of residential real property, remains pending in the Senate Commerce Committee and continues to be an important bill for the industry. Likewise, HB 1027 by Rep. Troy Hebert , dealing with appraiser liability, had a strong week, passing the House 90-0 and moving to the Senate. Both measures are significant because they promote greater clarity, consumer protection and confidence in the real estate marketplace. Blight and redevelopment issues also remained active. HB 284 by Rep. John Wyble , which would allow certain local governments to expropriate blighted property through a declaration-of-taking process, remains subject to call and continues to raise serious concerns about private property rights. By contrast, HB 214 and HB 217 by Rep. Chance Henry , which create tax incentives for the rehabilitation of blighted property, represent a more constructive redevelopment approach by encouraging reinvestment rather than expanding government taking authority. Insurance legislation also remained a major focus this week, with multiple bills heard that could affect homeownership costs, market stability and post-storm recovery. Measures dealing with Louisiana Citizens assessments, pre-suit insurance claim review, the Fortified Homes Program and insurance market transparency all carry real implications for affordability and transaction viability. In Louisiana, insurance remains one of the most important issues affecting the real estate market, and Louisiana REALTORS® continues to closely track that legislation. Taken together, week seven showed that Louisiana REALTORS® remains actively engaged where it matters most: supporting practical transaction standards, protecting private property rights, testifying for and against legislation when necessary, pushing back on unworkable regulation and rent-control-style policies, and advancing policies that strengthen housing opportunity and market stability across Louisiana. Please view the weekly bill tracking report provided by our lobbying team over at Harris, DeVille and Associates.

Consumer Guide Update: Navigating Interest Rates Shifts

By Louisiana REALTORS® • April 23, 2026
NAR is pleased to share the latest consumer guide helping buyers navigate shifting interest rates. The one-page guide covers how lenders set rates, the impact of small shifts on monthly payments and strategies to get the lowest rate possible. As a reminder, all guides in this series are available for download—in both English and Spanish—on facts.realtor . Please allow up to two weeks for the Spanish version of the latest resource to be translated and uploaded. For ease of reference, below is a list of the most recent guides: NEW: Navigating Interest Rate Shifts Financing a Renovation When You Buy Staging Your House for a Sale Spotting Deepfake Scams in Real Estate Are You Ready to Invest in Real Estate? Thank you for your continued engagement with the “Consumer Guide” series and for sharing the resources with prospective clients to ensure they have the information they need to find success in their home buying or selling journey. Remember that these guides are for informational purposes only and are not meant to enact or change any existing NAR policy. Be on the lookout for the next consumer guide, which looks at how solar installations may impact home sales transactions.
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