An escalation clause is a clause in a purchase and sale agreement that, under certain circumstances, automatically elevates the offer price so as to beat any other offer. The offer will contain the buyer's initial offering price. If the seller receives another offer with the same price, an escalation clause will raise the first offer's price in specified increments until it beats the other offers, usually up to a maximum amount. In other words, escalation clauses act as de facto bidding wars, except that the bidding happens automatically by comparing the competing offers.

In a hot housing market, sellers commonly market their home so that they receive multiple offers. This is often accomplished by listing the house with a comment indicating that all offers will be considered on a particular date. The house may be slightly underpriced as well in order to attract more buyers. Buyers, recognizing that they are probably in a competitive situation, will often include an escalation clause in their contract. Thus, sellers are able to generate competitive bidding that drives up the final sales price. An escalation clause raises issues for both buyers and sellers.