If the seller said "no" so be it. If the listing agent said "no" without consulting the seller, he/she failed to do their job and present all offers. If they did not understand how it works they need some continuing education.

I've encountered that too, with a "just give us your highest and best".
Maybe they're math skills inhibited and don't want to crunch the numbers to compare the offers for best nets?
When I have a listing, I don't have any concern with setting up an Excel spreadsheet to show my sellers the terms of a multiple offer situation and taking into account any/all escalation clauses.

Maybe they waived inspections?  Maybe their offer was cash?  Maybe they liked the font on the offer better (stranger things have happened)?  When I hear "no escalations" it's usually an agent that doesn't understand the clause or greed has set in and the seller/agent want to see just how much a buyer will throw at a house (ie. rather than beat the best offer by a little bit they hope the buyer will just go "all in").  

Wayne Martin nailed it. 

   Unless an LA has (preferably written) instructions not to present such an offer, that Agent could find themselves up the proverbial creek. 

When I worked for Prudential, 04 and 05, my broker expressly forbade us to use escalation clauses for our buyers. Did not want them coming back at us in the event that they overpaid. As we know, many buyers did just that to their agents. That's why we have a market conditions advisory in our forms now. LOL

Did not forbid us from receiving offers with escalation clauses. Not widely used in my area. Typically just multiple offers and highest and best if more than one was close and the highest.

Now as for the up to 10K over the highest offer, I don't see why the listing agent did not take it to the seller and explain it. Somebody didn't understand whether it was the listing agent, the seller, or both.

Makes one wonder if the offer was presented.  Did the buyer's agent take the full offered commission (maybe representing a relative as their agent), or a cash offer, or a non-contingent offer.  These situations have too many variables without seeing the other offer in my opinion.  The only one that torques my jaw is when the listing agent has a friend from their office get the offer accepted.

The best price with all the contingencies tied to it. Double back after the sale closes and talk with the listing agent and do the post mortem to learn more about what went down Paul S. Henderson, REALTOR®, CRS . This particular seller favored another contract for his / her own personal reasons.

Are agents allowed to accept or decline offers in your state?

We find that sellers are reluctant to accept for a few reasons:

     They dont understand, and neither does their agent.

     They feel insulted that the buyer is trying to get it for one price when the escalation clause indicates that they are willing to pay 10k more.

I think escalation causes are silly. If I received one on my listing, I would tell my seller to ignore it if the max number was unattractive. If the max number was the best offer received, I would counter for the max amount so there would be no confusion about the purchase price.

Buyers need to write an offer they are willing to stand behind and not a "maybe" offer.

It depends on your local rules. One problem we have with an escalation clause is proving the highest offer. We cannot share the details of the other offers.

What you can do is make an offer and let them know your client is willing to go higher and it is just a starting point. They may or may not come back to you. But, as mentioned below, giving your highest and best is the best practice.

I suspect that the listing agent didn't fully understand how they work and couldn't properly explain it to his/her client.

The listing agent would have to answer that for us to know the truth, but it certainly seems odd that a seller wouldn't accept the best offer on the table.

I've run into agents who were "escalation-clause-challenged".  They either didn't really understand how they worked, or just really didn't like them (they didn't think they were fair, and felt they were cheating).

And while we all know that the agents don't get to make the decision, they do have a lot of influence with the sellers.

I've only run into a situation once where the sellers themselves didn't care for the concept, and turned down a higher escalation clause offer because they felt it was an unfair advantage and wanted to give the bid to the people who "just gave the offer they felt was how much they wanted to pay".

Listing agent had both sides?

I'm thinking there was something fishy going on. It doesn't seem to satisfy fiduciary duties. I had this happen to me once. The listing agent had a buyer too. She convinced the seller to accept her offer instead of my buyer's higher offer.

In NC, they are strongly discouraged by the REC but, they are not prohibited. The issue is that we are not allowed to Disclose what another buyer has Offered. Because of that, many listing agents don't know how to handle the escalation clauses presented so, they tend to ignore those Offers.

I don't know how it is in WA but, in my mind, it's an easy thing to negotiate as a listing agent. And, as a BA, it's an easy thing to do to pick up the phone and explain it to the LA, JUST IN CASE they don't know how to manage them. 

Also, did you reach out to the agent to ask about that specific deal (after the fact)? I just had something very similar happen - my client offered $26K over list. Someone else had offered $50K over and won, according to the LA ("Nearly double the overage amount your client presented"). The home sold for $11K LESS than what my client offered! I needed to be able to explain this to my seller. 

What happened is that the inspections revealed major structural defects and the price was adjusted accordingly. 

Experiences does matter and agents don’t get it. 

Because if they really wanted the house they'd have come in at the 10k higher price.

Escalation clauses are a very dangerous situation.  Say you have a house listed for 500k.  Someone offers 510 and you offer 510 + 10k over highest offer.  What if two offers have escalation clauses?  Does it ever stop?  Can a house really be sold for "Infinity Plus 10k"?

What if the LA has a buddy bring in an offer for 550k, now your buyers are paying 560k which is probably more than they wanted.  What if the 550k offer was legit, but your clients decide to sue the LA because they think it's a fake offer to drive up the price?  There is too much risk to let those into the mix.

And of course... price is never the sole factor.  The terms of the winning offer could have been much better.  Waived inspections, all cash, similar job/past life, name recognition, etc.

It's not something I would turn down. I have used them myself & think it's a good thing to put into your bag of tricks.

I agree with Fred Griffin Florida Real Estate , the agent that refuses those better have written authority to do so. 

Paul S. Henderson, REALTOR®, CRS were you dealing with an inexperienced agent that just didn't understand? If that be the case I'd suggest that you ask his broker to "school" him on just what an escalation cause is.

That is unreal.  Some agents are not looking out for their sellers.  I had the same think happen last year and the other agent said it was a cash offer.

Agent might have had instructions from seller that they didn't want to deal with bidding wars and escalation clauses. I prefer to just ask for highest and best depending on the current market. Even then, some agents will ask why seller didn't counter. Also, sellers are not required to accept the highest offer. Other factors could have been involved.

My broker says no to escalation clauses, highest and best typically is the way to write a contract, if there are multiple offers. Recording and confidently moving forward is the preference, rather than incurring problems down the road because someone felt they were coerced into paying well over market value.

The answer to your question may be found in the pre-escalation times.

What Wayne Martin said. 

It gets very confusing when several offers have one ! Who is bumping who 

Personally, I do not like escalation clauses BUT I would present my buyer's offer. On the flip side as a listing agent, I would present all offers received. A buyer with better terms could trump an escalation clause

I am a firm believer that an escalation clause should be illegal and there is a maximum that anyone can afford for qualify to get the mortgage.

you actually never know.  I've had an offer that was the highest, then inspection revealed something serious and price was negotiated by $40,000. so someone looking at it after the fact was unaware of what inspection showed or that it was a $50,000 repair issue.  So you don't know what you don't know.