By Mark Weisleder

“I will pay $5,000 more than the highest offer received.” This is what is known as an escalation clause and it has been developed to give a person in a bidding war an advantage over the other bidders. It usually will also include a “cap” such that the maximum price to be paid will not exceed a certain amount.

The question is whether escalation clauses are permitted in an Ontario bidding war where agents are being used. It has long been my own view that these clauses are not permitted. Yet the Real Estate Council of Ontario (RECO) recently issued a bulletin stating that while they do not endorse the use of escalation clauses, they are not illegal. Here is what you need to know.



Real estate agents are not permitted to disclose the substance of any offer in a bidding war.

In the Real Estate and Business Brokers Act 2002 Code of Ethics, it is clear that a real estate salesperson can only disclose the number of bids received in a bidding war, but cannot disclose the substance or contents of any offer received.

It is for this reason that auctions are not permitted in the sale of real estate when you use an agent. If you want to have an auction, hire an auctioneer, as they do with many farm sales. In my own experience, I note that auctions are not successful in a regular resale home situation and that is why they are not used.

How is RECO permitting this? The RECO bulletin seems to state that if an escalation clause is used, the seller can just insert the “escalated price” into the agreement and accept the deal. So, in my example above, if the highest other offer received was $400,000, the seller could just write in $405,000 and the contract would be accepted. My question is, “How can you write in $405,000 without disclosing that your highest offer received was $400,000? To me, this would clearly be a violation by the agent of their Code of Ethics obligation.

Could an agent be sued if they insert an escalated price? In my opinion, an unsuccessful buyer in a bidding war could bring a lawsuit against a seller or brokerage who comply with an escalation clause, stating that they only put in their bid on the understanding that their bid price would remain confidential. They never agreed to their price being communicated to any other bidder, whether directly or through an escalation clause.

Can a buyer verify the price paid by the other offer? Here RECO says that you cannot disclose any part of the other offer to the buyer who wins using an escalation clause. Yet they also warn the seller agent that they should consider keeping a copy of that offer in case it is challenged by a buyer later. So, what this means is that the only way a buyer who wins by using an escalation clause can find out whether the other offer was legitimate, is by suing. This clearly opens the possibility for fraud, with sellers perhaps encouraging friends to put in an offer at a high price to use as a basis for the escalation price.

How do you know if this is an escalated price or a counter-offer? More confusion. When the seller puts in a price, are they actually inserting an escalation price or just submitting a counter-offer for the buyer to accept? And where is this escalation price to be inserted in the contract? This could also lead to more confusion as to whether the contract was legitimately accepted or not in the first place.

In conclusion, until we have a court decision that may explain these issues, it is my advice that brokerages representing sellers in a bidding war should make it clear prior to any bid received that escalation clauses will not be permitted or shown to the sellers, due to concerns about possible litigation. That way every buyer is treated the same in a bidding war.

  • PED

    Thanks Mark, for your input, I as hoping that you would, you’ve addressed the exact two issues I haven’t been able to wrap my head around – how does this not disclose a salient fact about other offers and is it a counter-offer?

    That a buyer could turn around and sue for breaching disclosure rules is one I didn’t think about but well worth noting.

    It would be great Mark can share his thoughts about the multiple representation debate currently raging.

  • Brian Martindale

    To the eight real estate salespeople/brokers on RECO’s board of directors: You just had your ass handed to you by Mark’s argument. Do the right thing ‘before’ the court decision is handed down. In this case the right thing is the moral and ethical thing. Any time that a potentially successful lawsuit can be launched against a Realtor/brokerage, then that is the time to re examine the rules or lack thereof that can lead to said litigation. This includes the “clear as mud” direction from RECO that the escalation clause spawned.
    In this case scenario, whose side are you on RECO; commission chasers or trusting consumers? The answer should be a slam-dunk and need not be offered up by me or anyone else for that matter. Sometimes what might be judged to be legal might also be perceived to be unethical and immoral…by the public…you know…those people whose fiduciary interests you (RECO) are supposed to be advocating on behalf of…those people who are indirectly paying RECO’s salaries. Some brokerages/salespeople advocate on behalf of consumers, and others advocate on behalf of their income streams. For whom do you advocate RECO…’all’ of the time, ‘every’ time? You (RECO’s board of directors) are the only constant mired within this mess. Do your job, correctly; take the lead. Encourage the public to gain trust in the system that is ostensibly supposed to be looking out for ‘its’ concerns. Shed the fox attire and don the police uniform. Wishy-washyness doesn’t cut it.