Escalation clause. For those of you who asking "What the heck is an escalation clause? It sounds painful."
An escalation clause is a tool used by buyer's agents, typically as part of a multiple offer situation, that says: "We will pay $X,XXX more than your highest offer".
I have found myself on both sides of an escalation clause. As the listing agent, during multiple offers, we received five offers. The property was listed for $350,000, and one of the offers said "We will pay you $2,000 more than your highest offer, with a maximum of $375,000.
The sellers were confused. "Why didn't they just pick a number they're willing to pay, just like the rest of them did?" "Should I be concerned, if we force them to pay more than they were hoping, that they'll try to get that money back during inspection?" Surprisingly these particular sellers didn't like the idea of the escalation clause. They thought it felt like "cheating". So they chose the highest offer that didn't include an escalation clause.
Recently as a buyer's agent, I found my buyer in a multiple offer competition. I suggested an escalation clause as a tool we might use. My buyer loved the idea. The property was listed for 450,000... we wrote our offer for $465,000 OR $2,000 higher than your highest offer with a maximum of $575,000!!! (my buyer was intent on getting this property and he was prepared to pay for it. And we weren't worried about appraisal since this was a cash deal). We got the property... and it only cost us the $465,000 which turned out to be the highest price, without the necessity of escalating.
When using an escalation clause, of course, we do ask to see the cover page of the "highest offer"... that we'd be adding $2K to beat. (Trust, but verify).
And, of course, there is a lot more to an offer beyond the purchase price. Closing date, down payment, earnest money, closing date, inspection... this is merely one tool.
please make sure that the use of an escalation clause is legal in your region.