What is a Backup Offer?
Many buyers and sellers alike are asking what exactly is a Backup Offer?
As with most any profession, specific tools and techniques are available to help with particular situations. For real estate professionals, one of those tools is the backup offer.
When asked What is a backup offer the following will help explain the nuances of this real estate tool.
In a situation where there are multiple offers, the seller can accept any offer they wish for reasons important to them, often leaving those that wrote it disappointed. There is rarely a 100% guarantee that the buyers can and will fully perform on the contract and close accordingly. To hedge on that possibility, the seller may make a counteroffer to one or more of the other offers to stand as a backup if the primary contract does not close.
When a buyer asks what a backup offer is, they can be next in line at having a chance to purchase the property should the first contract fall through. The benefit is that you’ll be next in line to buy the home without having to submit another offer and, possibly, get into a bidding war. It simply moves from the first backup to the primary contract position.
The buyer in the backup position also experiences uncertainty if it will work out and feels like they could be wasting their time waiting to hear the outcome of the first contract. Many of these buyers will continue to look at homes in the likelihood that another acceptable or better property becomes available.
Should this situation occur, the buyer in the backup position may or may not be able to withdraw from their contract. It will depend on how the agreement is structured. Understanding your contract rights and limitations is essential.
A backup offer can lock you into a binding contract until the primary contract’s buyer is approved and closes or until it fails to close and the backup buyer becomes the primary. The backup may or may not have a unilateral way to withdraw the offer before one of these outcomes.
What is a backup offer? Here are some considerations:
- Can a you as a buyer in a backup contract unilaterally withdraw at any time?
- Will the earnest money be deposited on a backup offer?
- Will the timelines for contingencies like mortgages or inspections need to be made before becoming the primary contract?
- Will the backup buyer incur any fees?
Sometimes sellers will utilize a backup offer to apply leverage to the primary contract’s buyer. For instance, if the seller feels the buyers’ demands on repairs are too high, the seller might say, “if you’re not willing to accept it ‘as is, I have another buyer waiting to do so.”
Many buyers and their agents want to refrain from obligating themselves to a backup offer. However, in certain situations, it is an excellent tool to have the opportunity to purchase a home that meets their needs.
In the highly competitive market experienced in 2021 and part of 2022, some buyers may have been reluctant to use a backup because of the slim possibility that it would become the primary offer. With the shift in the market due to interest rate increases, a backup could be a viable tool towards getting you into your dream home.
As your real estate professional, I can help you understand the advantages and disadvantages of backup offers. Recognizing that contracts are legal and binding, you may consult an attorney who with your agent best understand the details of the contract.
By asking what is a backup offer you will have a much better understanding of this tool and its uses in real estate.
Here are some additional articles to consider. What are typical Albuquerque Closing Costs and useful Financial Calculators?
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