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What Is A Backup Offer On A House?

5-Minute Read
Published on June 10, 2022
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It’s happened before: A buyer finds the perfect home but before they can get their bearings, another buyer has already made an offer.

Talk about a gut punch. However, it's important to remember that it might not necessarily be the end of the road. The purchase could still fall through.

This is why you might consider making a strong backup offer for the seller – a potential substitute to the first buyer's offer.

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What Is A Backup Offer In Real Estate?

A backup offer is a legally binding contract that recognizes that an existing offer exists. It ensures that if the first offer falls through, it puts you in second place to buy the home with agreed-upon terms.

The backup offer is significant when buying a house and/or selling a property because you automatically enter into a contract with a seller if the first buyer backs out. The house doesn't go back on the market.

What is required of you when you want to submit a backup offer? It's a good idea to get your real estate agent or REALTOR® moving on your case. (REALTORS® are real estate agents who are members of the National Association of REALTORS®.)

Your real estate agent can help you put together a worthy offer (possibly above asking price) along with your preapproval, proof of funds and your earnest money deposit in an escrow account. An earnest money deposit refers to the money you put down to indicate that you're serious about making the purchase.

Why Would A Buyer Make A Backup Offer?

Backup offers might be right up your alley if you're:

  • Not stuck to a particular schedule: If you're in no hurry to move, a backup offer might seem attractive to you, particularly if you find a house you really like.
  • Sure it's a house you'll enjoy: If you're positive that you really like a home that already has an offer on it, why not give it a shot?
  • Doubtful the house is perfect: If your agent shares something about the home that could cause a buyer to back out, you may want to put your name in the hat. For example, maybe the listing agent shares with you that the home has a cracked foundation, but that happens to be your job and you are confident about being able to fix it.

You can put in a backup offer, though it isn't a guarantee. You may not end up with the home because it may go to the first person in line, which often occurs.

How Do Backup Offers Work?

Your main question might be ”How do backup offers work?”

The buyer proposes the conditions, including the offer price, which the seller can agree to or reject.

When a backup offer is accepted, this means that the initial offer fell through and you can proceed toward a home inspection, appraisal, final walkthrough and closing. However, if the original offer closes, you're released from your contract and your earnest money will go back to you.

How To Make A Backup Offer On A House

Making a backup offer is a similar process to making a regular offer on a house. Your real estate agent should be able to offer the best advice in this situation because they will have intimate knowledge of your real estate opportunities. This knowledge can help you put together a solid purchase agreement, which outlines the details of the transaction.

Your real estate agent might offer advice about how much to offer in your particular real estate market. In a cool market (when homes spend more time on the market than average), you may be able to offer the exact listing price or a little less. However, if you're buying in a hot market (where frequent bidding wars burst on the scene), you'll likely have to make a more competitive offer.

You can signal to the seller that you’re a legit buyer in your backup offer by:

  • Getting your finances in order: You can prove that you've got your financial ducks in a row by offering proof of mortgage preapproval.
  • Make a competitive offer: A less appealing offer won't attract a seller to your backup offer, so consider making sure your offer has some "oomph" to it.
  • Eliminate contingencies: While it's true that contingencies protect you, it's also true that a seller will be more likely to accept your offer if you don't have a whole raft of contingencies built into the contract. It could mean a smooth sale from the seller's point of view. However, it's important to discuss the repercussions of eliminating contingencies with your real estate agent before you go that route.

You're required to make an earnest money deposit as the buyer. Then, just like an initial offer, once it's been signed by the buyer and seller, the backup offer is a binding contract.

Pros And Cons Of Writing A Backup Offer

There are pros and cons to putting in a backup offer. What are the pros and cons for buyers making a backup offer and for sellers accepting a backup offer?

Pros

For buyers making a backup offer, you may be able to eliminate potential competition for the home and secure a purchase price you’re comfortable with if an existing offer falls through. You may also be able to potentially guarantee you the home of your dreams.

For sellers, backup offers can give you room to negotiate existing offers on the house. If an existing offer falls through, a backup offer also guarantees that you will sell the property, so you won’t have to put your house back on the market.

You can accept more than one offer at a time. In fact, accepting a backup offer may get your first offer to commit. It could make them nervous that you're accepting backup offers.

Cons

For buyers, making a backup offer can limit your home search because you’ve entered a legally binding contract on the house. This means you have to move forward with the home sale if the seller accepts your backup offer. In addition, you could still lose the home. Putting in a backup offer doesn't guarantee that you'll get the home at all.

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What Does Accepting Backup Offers Mean For Sellers?

What does accepting backup offers mean? When a seller accepts a backup offer on a house, it's important to realize your first offer is still valid and under contract. However, it's completely valid to accept several backup offers while you are under contract (in case your primary buyer falls through). The original offer can only dissipate if the sale falls through.

Again, buyers interested in making a backup offer on a property where the seller is accepting backup offers should make sure they're putting in good, strong offers for a home.

Should A Seller Accept A Backup Offer?

Yes, the seller may want to accept a backup offer on their home, in part to encourage a first-offer buyer to commit to the home sale and see it through. However, you don't want the backup buyer to think he's the first person in line when he's not. It's really important to be transparent about the fact that you're accepting backup offers. 

The Bottom Line

If a buyer wants a home already under contract, they may request to be “next in line” by submitting a backup offer. The process of putting together a backup offer looks very similar to writing an initial offer.

It's a good idea to only make a backup offer on a home you're serious about, because a backup offer is a legally binding contract, just as much as a primary purchase agreement.

However, before you believe you'll cruise right toward an accepted offer, understand that a backup offer doesn't guarantee that you'll get the keys to the home.

Have you been searching for a home and you’ve found the perfect house? Learn more about contingent offers.

Apply for a mortgage today!

Apply online for expert recommendations with real interest rates and payments.

Start Your Application
Melissa Brock.

Melissa Brock

Melissa Brock is a freelance writer and editor who writes about higher education, trading, investing, personal finance, cryptocurrency, mortgages and insurance. Melissa also writes SEO-driven blog copy for independent educational consultants and runs her website, College Money Tips, to help families navigate the college journey. She spent 12 years in the admission office at her alma mater.