How an Escalation Clause Can Cause Trouble

There may be instances where a client wants to add language to a real estate contract. In a “hot market,” it is not uncommon for a buyer to want an escalation clause added to the contract (for example, language stating the buyer will pay “X amount more than the highest offer if other offers are present”). Typically, an escalation clause such as this will be added to “Paragraph 11, Special Provisions” (which is reserved for factual statements and business details) of the One to Four Family Residential Contract, but it might also be drafted as an addendum to the contract. 

It is important to remember that a real estate contract is a legal document and any changes to the contract can impact the rights of the parties to the contract (the buyer and the seller). A license holder cannot draft an addendum or add language to the contract that defines or affects the rights, obligations, or remedies of the parties, and the Real Estate License Act and TREC Rules—specifically TREC Rule 537.11(b)(5) — prohibit this. A license holder who adds these terms to the contract in any manner, including drafting an escalation clause, is engaged in the unauthorized practice of law.

To avoid violating the law, a license holder whose client wants this type of language added to the contract, or has questions regarding the impact of specific language (such as an escalation clause) should always recommend the client consult with their attorney. Remember, a license holder who violates this may be subject to disciplinary action, which could include an administrative penalty between $500 – $3,000 per violation per day and/or possible license suspension or revocation.

TREC recently published a helpful video with General Counsel Vansessa Burgess on this important topic:

Source: Texas Real Estate Commission