Picture this: You've been house hunting for ages and finally find the home of your dreams. The only problem is, it's already under contract with another buyer. Yet your Real Estate Agent says there's still hope. Enter, the backup offer.
But what exactly is the backup offer, and is it worth waiting in the wings for a home that's already taken?
It helps to learn exactly how it works. As a buyer, you make an offer just as you would if you were the first interested party, negotiating until you reach terms and a contract with the seller. If the first deal falls through for any reason, you're next in line to get the house.
Benefits of The Backup Offer for Buyers (and Sellers)
Although it might seem like a long shot, the backup offer actually has a reasonable chance of scoring you a home. Deals fall through for all kinds of reasons, so if you're in the backup position, you'll lock things in and keep a home from going back on the market.
Locking things in like this is smart in competitive areas with low inventory. For example, if the original deal falls through and that home you love is relisted, you'll be competing against other buyers, which could spark a bidding war that will boost the home's price.
From a seller's viewpoint, the backup offer can offer both peace of mind and leverage.
If at any point the seller feels the buyer with the currently accepted offer is being difficult or does not have the funds to purchase the property, then they know the backup offer is there.
How To Make Your Backup Offer Stand Out
Offering above the asking price will, of course, catch the seller's eye, but that's not the only way to make your backup offer seem tempting. Did something about the home or neighborhood really strike your fancy? Let the homeowner know.
Personalize your backup offer by finding points of connection with the property, seller, or neighborhood. If the opportunity arises when a backup offer needs to be selected, the points of connection will hopefully resonate, along with the offer price.
It's also important to get a sense of where buyer No. 1 is on the home closing timeline. The original buyer typically has to close the deal within a certain time frame - 50 days on average - so it's helpful to know how long you have to wait for a decision.
During this time frame, it's also wise for your Agent to check in frequently with the Listing Agent not only to keep tabs on how things are going, but also to indicate how serious you are about stepping in if things fall through.
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Typically, a backup offer will require an earnest money or good-faith deposit, which will be returned should the first buyer close on the property.
What Are The Odds That The Backup Offer Will Succeed?
When making a backup offer, it's important to remain realistic about your chances.
Getting attached to a house that you most likely can't get is like holding out hope for unrequited love; generally, it brings nothing but disappointment. If your real estate market is consistently closing transactions, it’s not the best idea to hold onto great hope.
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In fact, a backup offer can have the effect of pushing the first buyer to close as quickly as possible - and possibly overlook small issues since the buyer knows the seller has no reason to be all that flexible, with a second suitor waiting in the wings.
What If the First Deal Falls Through?
If the first offer on the home does fall apart, don't assume you're in the clear just yet. While the contract may have foundered due to issues with the first buyer (for instance, lack of financing), it's more likely that those buyers unearthed problems during the home inspection - e.g., a faulty foundation or leaky roof.
If first deals do fall apart and it’s because of bad home inspections, you may not even want the house.
So, if the first buyer walks, make sure you know why. If it's a serious flaw, you should ask yourself: Do you really want to deal with it yourself?
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Make sure to do your own due diligence (and perform your own home inspection) to detect any problems you don't want to deal with. If so, as long as you include a home inspection contingency in your contract, you can walk away from the deal as well (with your deposit) no worse for the wear.
Have you ever considered making a backup offer? What was your thought process? Are you a former seller you received a backup offer on your house? How did that play into the overall closing process? Sound off on the Shannon McCarthy Team Facebook Page, Twitter or on our Instagram feed. And don’t forget to subscribe to our monthly HOME ADVICEtm email newsletter for articles like this one delivered straight to your inbox. You may unsubscribe at any time.