You found the home of your dreams, but in a cruel twist of fate, it already has an offer on it. Though it may be that you’ll just have to accept the loss and move on in your search, all hope is not lost.
Home purchase transactions fall through for all sorts of reasons, from contingencies not being met to financing issues, so it can’t hurt to position yourself to potentially pick up the pieces of a broken deal and get into a home you had your eye on.
This is where the backup offer comes in.
What Is A Backup Offer?
In home buying, a backup offer is made in acknowledgment of an existing offer and ensures a contract with the seller if that first offer falls through. It’s a legally binding contract that, if accepted by the seller, will put you next in line to purchase the home should the first buyer back out.
If the original offer successfully closes, you’ll be released from your contract and any earnest money you put into escrow will be returned. Additionally, you should be able to withdraw from the backup offer while the first offer is still active if you decide to move on; however, double-check with your real estate agent to make sure, and know that you should only make a backup offer on a house if you’re serious about closing on it. If the primary offer does fall through, your offer will move into the primary position and the process to close on the house will begin.
How Do I Make A Backup Offer On A House?
Making a backup offer is a similar process to making a regular offer. A seller considers and accepts a backup offer just as they would a primary offer, so it’s important to strategize if you want yours to be accepted.
Pricing your backup offer can be a little tricky. After all, you want to price it so that it’s likely to be accepted by the seller. How much you should offer depends on the real estate market in your area.
If you’re buying in a cooler market where homes typically spend longer than average on the market before being sold, you may be able to offer listing price or slightly less. The reasoning behind this is that your backup offer gives the seller a safety net that prevents them from having to reenter the market if their primary offer falls apart. That security may be worth accepting a slightly lower price than the current offer.
On the other hand, you may have to offer more. If you’re buying in a hot market, where bidding wars are frequent, you’ll want to make a competitive offer to have the best odds of your backup offer being accepted. In some really hot markets on highly sought-after properties, it’s possible for a seller to accept multiple backup offers, lined up in the order in which they were accepted. However, it’s already unlikely that the first backup offer will end up coming into play – further backup offers are highly unlikely to move into the primary position.
Just as you would when making a primary offer, make sure your backup offer is strong. Having proof of mortgage preapproval ready to go and limiting the contingencies you ask for shows that you are serious about the property and eager to close if the opportunity arises.
What To Consider When Making A Backup Offer
If you’re considering making a backup offer, there are some pros and cons you should think about first.
The benefit of making a backup offer is that, if it’s accepted, you’re automatically under contract with the seller if the first buyer backs out. This means that the house won’t go back onto the market and you won’t have to fight with other bidders to put in the winning offer.
However, this can also be a hindrance on your home search. Most home purchase contracts go on to successfully close. The odds are that your backup offer won’t come into play, and the time you spend waiting to find out if it will could be better spent looking for houses that don’t have any offers on them.
If you continue house hunting while you wait for a verdict on the home you have a backup offer on, you could end up in a tricky position if you find a house you like better. Even if you’re able to back out of the offer, it may take some time getting your earnest money back. If you need that money to make another offer, you may have trouble acting fast enough to secure the home you want.
If the primary offer does fall through and your offer goes under contract, you should also consider why the first offer didn’t work out. If it was issues on the buyer’s side, such as financing falling through, that’s less concerning than if the buyer backed out due to issues with the property.
Though you want to be careful about including too many contingencies, the inspection contingency, which gives the buyer the ability to have the home inspected and back out of the contract if repair issues cannot be resolved, is vital to most real estate contracts. It’s especially important when making a backup offer, to ensure that you’re not stuck under contract on a home that has significant issues.
Accepting Backup Offers As A Seller
As we already mentioned, having a backup offer on the home they’re selling can be very beneficial for the seller. When you have a backup offer on your home, you won’t have to go back to the time-consuming and stressful process of trying to sell your home if your first buyer backs out, because you’ll already have another buyer waiting to take their place.
Additionally, having a backup offer can make your current buyer more motivated to close because they know there are other buyers interested in the home who are vying for a chance to get it.
However, think carefully before accepting a backup offer, because it’s possible you’ll end up having to live with it. If you don’t like the offer and would rather put your home back onto the market if your first offer falls through, don’t feel compelled to accept it just because it’s there.
Is A Backup Offer Right For Me?
Making a backup offer can help savvy buyers get into the home they really want even after it’s seemingly been snatched up by another, but buyers should take time to consider the pros and cons of making an offer on a home that’s already under contract. Whether this tactic will make sense for you depends on your home buying timeline and how flexible you’re willing to be.
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