Aloha, Lance Owens (RS) here with KonaHomeTeam (luva llc). I go over this topic when training agents, or educating my clients, (both buyers and sellers) - some get it, some don't, and let's face it, if there was one perfect way to negotiate, we would all be doing it!
What is an escalation clause you ask?
Escalation clauses: This is a clause in the offer that states if a competing bona fide offer is made on the property, the buyer’s offer will automatically increase by a certain dollar amount over the competing offer up to a maximum
Reason #1: You just tipped your hat as to how high you are willing to go in a negotiation - that's not a very good start. I liken it to playing a game of poker, but you are the only one at the table that is placing a bet, with all your cards laid - face up! (can you tell I grew up in Vegas)
Reason #2: You have also told the seller, hey I think your property is only worth "X" amount, but if I am forced to, I will go up to "Y" amount.
Reason #3: With 18 years full time experience negotiating contracts, anytime you push someone over what they feel the value is..... the first thing they do is, try and get that money back during the home inspection.... or the appraisal price, and the last thing you want to do, is be 3 weeks into a contract and have the buyer pull that on you - and it happens, it happens more often than you think.
Reason #4: Now the National Association of Realtors (NAR) agrees with what I have been saying for years ;) (see 4 ways to reduce risk .... May 6, 2021 )
Bottom line, in this market you should be going in with your "Best and Final" offer and not play the escalation clause game. Speaking of "escalating" with todays homes going up in value faster than appraisals are, an "Appraisal Waiver" will go much farther than an "Escalation Clause" will.