Real estate agents cannot legally reveal your offer to other buyers, although the seller may share it with other buyers. It is an interesting fragment of the negotiations in real estate. You can find more details regarding the can a realtor tell you what other offers are discussion.

Query from Reader: Our agent recommended adding a contingency to write an offer indicating our willingness to overbid the house if someone else makes an offer simultaneously. It would include a contingency that gives the seller a chance to submit a better offer to us, which we would be able to outbid. 

In spite of the fact that it seems feasible, is it possible that another purchaser will try the same tactics on us? Is this idea ethical? Our offer was supposed to be confidential. Is it permissible for real estate agents to show our offer to other buyers?

Monty’s Answer: Real estate agents have no legal right to disclose the information in your offer to anyone other than the seller. The law does not apply to sellers of the home you would like to purchase in my state. Other potential buyers may see your offer.

A clause of this type is commonly called an acceleration or price escalation clause. It may also be called a last-look clause. I haven’t looked into every state, so I assume they are legal everywhere. If your agent suggests this clause, it is likely to be legal. If you are unsure, ask your agent.

Controversial clause

Sometimes, real estate agents and consumers consider price escalation clauses unfair or ineffective. Some argue that real estate sales legitimize the practice in auctions or by the law itself. Auctions involve a seller sharing the highest bid price with other buyers until there is no higher bid. It has proven successful for some homebuyers. An offer can be countered by the seller with a price escalation clause. A listing agent may suggest that their seller remove faulty acceleration clauses from an offer.

A clause that might be countered would be, “ Buyer is willing to pay $___ above the highest offer given by the seller, up to the maximum sales price of $_______.

Ideally, the escalation clause should include the terms of escalation, such as the net proceeds-based escalation factor; the competing offer should be legitimate and acceptable for the Seller at a higher price than your offer; net proceeds for the seller increase by $___; Identifying the Cap amount and the supporting documents proving the increase; Disclosures would include the possibility of multiple escalations, which may exceed your cap; You would also be required to follow the loan application process. How are additional price increases considered in financing? Will the increase be paid in cash while the mortgage is the same, or will you need additional capital? Such a contingency may include other provisions depending on the buyer’s or seller’s circumstances.

Usage Circumstances

The low inventory in hot markets makes multiple offers more likely to use escalation clauses; it can also be used when the property is unique, and a right-of-first-refusal contract or unique properties can trigger the demand for an escalation clause. Furthermore, there are other circumstances where they are used, such as fear of loss or timing problems.

An Escalation Clause’s Advantages

You may gain an advantage over other buyers if they are unaware of or unwilling to use the tactic. By eliminating the competition, it is possible to shorten the negotiation process. You may appear to the seller as the most eager and open buyer.

Escalation Clause Risk

Your offer reveals a higher property price than your initial offer, which seems counterproductive. In either case, the seller is not required to respond to your offer and may consider it unethical or a dirty trick. When sellers accept offers that include a price escalation clause, they can no longer counter offer to more than one buyer. There is no way of knowing whether another bidder would be a higher price by comparison with a price escalation clause. Escalation clauses do not offer guarantees, and drafting them can be challenging. A legal review should be conducted before submitting the provision.