An escalation clause in a real estate contract specifies what a prospective buyer will offer for a home if the seller receives multiple offers. An escalation clause typically includes three elements:
• The buyer’s initial offer
• How much that offer will rise above any other competitive bid
• The maximum amount the buyer will offer in case of multiple offers
So, for example, an escalation clause might state that a buyer is offering $200,000 for a home and that the buyer will bid $1,000 more than other offers up to a maximum of $250,000.
Suppose you are willing to pay up to $300,000 for a house that is for sale. You decide to include an escalation clause in the contract. What is the maximum amount you should specify in the contract that you will pay if the seller receives multiple offers?