How Do Backup Offers Work And Should You Make One?
Have you found a house that you love and can’t wait to make a bid on, only to discover that someone else has made an offer instead?
Let’s take a closer look at how a backup offer works and if it’s the right home buying tactic for you.
What Is A Backup Offer?
Backup offers in real estate are great if you found your dream home and don’t want to miss your chance. If the initial offer falls through, the accepted backup offer, or second offer, goes straight into contract.
After all, there are many reasons that homes fail to be closed on. Having a backup offer in place provides you with another opportunity to get your hands on the home should it unexpectedly come back on the market.
Contingent contracts are common in the real estate industry. These contingencies can arise that derail sales from being fully executed. A backup offer ensures that you’ll score a new contract with a seller if the first offer they’ve accepted falls through.
You still have to put down earnest money in an escrow account as part of extending any backup offer. Should the first offer successfully close, your earnest money will be returned to you, and you’ll be released from the terms of your backup offer.
Consult with your REALTOR® if you need to back out of your backup offer. Backup offers are legally binding documents, so you need to ensure you’re adhering to the contract’s terms.
How Often Do Backup Offers Get Accepted?
Backup offers are accepted when a seller is uncertain that a property will be closed upon, especially when they need to unload the home quickly. They’re also commonly used when in a seller’s market, where sellers hold more power than shoppers do. They’re uncommon in a buyer’s market, when buyers can be more selective.
In general, the more a seller feels worried that an initial deal might not close and the more incentivized they are to sell their property, the more they want a backup.
Why Should You Submit A Backup Offer?
Maybe you’ve found your dream home. Maybe you’ve spotted a DIY rehab with tremendous potential. Whatever the reason for wanting to get your hands on a property, it’s important to consider the advantages and disadvantages of submitting a backup offer. Likewise, as you go through the process of weighing your options here, you’ll also want to be aware of how to know if you’ve found the right home to put an offer in on.
Pros Of A Backup Offer
- A backup offer puts you in line to make a home purchase if the first buyer backs out for reasons like property financing or home inspections
- When home sellers accept backup offers, it protects their property from having to be listed and put back on the market again
- Backup offers can help avoid bidding wars
- Having a backup offer in place can also help home buyers and sellers get an offer locked in even if the market changes on them
Cons Of A Backup Offer
- Knowing a backup offer is in place can motivate the issuer of the first offer to move faster on closing
- Sellers can collect multiple backups − though they’re also fully free to decline them and accept none at all
- A backup offer can lock you into a legally binding agreement if it’s accepted, though you may wish to move on later after issuing one
- Because it’s a legal contract, it can be difficult to cancel a backup offer once it’s been issued
- A backup offer may interfere with your housing hunting efforts, as it may be wiser to decide to wait to see what other homes come on the market and continue looking before committing yourself
How To Write A Backup Offer
Writing a backup offer on a home purchase is similar to writing an initial offer. In fact, it should be treated just as if it’s the first offer − and involve negotiating a fair price for the real estate holding as well. As part of putting together your backup offer, you’ll want to work closely with a real estate agent or REALTOR® to iron out the particulars, and work on or limit various contingencies (those relating to home inspections).
The Bottom Line
Backup offers are legally binding contracts that function similarly to first offers on a home. They give you a chance at buying a house if an initial, previously issued offer from another party falls through.
Consider the pros and cons of a backup offer. before you extend such an agreement. Make a point to discuss any backup offers with your REALTOR®.
Curious to learn more about properties in your area, and eager to get searching for a new home? You can get started online with Rocket Mortgage® and begin your house hunting journey today.