So, you’ve finally found the perfect house, except there’s just one little problem to contend with: it's already under contract.
While you probably think it best to move on to other options that are still available, you should know there's another option to consider: the possibility of submitting a backup offer.
So, exactly what is a backup offer?
At first, the concept of a “backup offer” can seem fairly simple. After all, it’s just what it sounds like -- a secondary offer that goes into effect if the first offer on a home falls through.
But, it’s crucial to remember that backup offers are legally binding. Just like when you submit a regular offer, if your back up offer gets accepted, you'll have to put a good faith deposit on the line. If you don’t end up getting the chance to buy the home, it will obviously be returned to you.
However, if the original offer does fall through, you’ll go immediately under contract, and your money will be at stake. If you decide to back out at that point, you could lose it.
Secondly, not all properties are open to accepting back up offers. Your real estate agent will be able to find out whether or not the property you're interested in is accepting back ups.
Knowing the pros and cons
Like any negotiating tactic, backup offers have their pluses and downsides. We’ve laid a few of the biggest ones out for you below to help you decide if writing one is the right move for you:
- No more competition: Once the primary offer in front of you falls through, that’s it. You’ve won the house. Backup offers allow you to go immediately under contract with the seller, without giving them time to market for other offers.
- You’re locked in on price: Once your backup offer's accepted, the seller has agreed to move forward with that deal as-is. Even if market conditions change while you’re waiting to see if the initial offer pans out and the seller could get a better deal, they’re obligated to take what you offered.
- There could be a good reason the last deal went under: Typically, when a deal falls through, it’s because one of the contingencies in the contract wasn’t met. For the most part, these won’t be relevant to you. However, inspection contingencies will be. Ask yourself: If the first buyer backed out because the home needs extensive work, will you still want to buy it?
- Your ability to house hunt is limited: Once you submit a backup offer, you essentially agree to see this opportunity through to the end, even if another house you like comes on the market. For one thing, a portion of your savings will be tied up with your good faith deposit on the home.
When to consider a backup offer
All considerations aside, there are a few situations where backup offers are useful. They are:
- When you want to buy the house no matter what: If you’re absolutely convinced that this is your dream home, and you’re determined to buy it no matter what problems it may have, a backup offer is your shot to beat out any further competition.
- You’re prepared to offer more than the current buyer: Backup offers need to be attractive. Otherwise, the seller will just work with the offer they have in hand. Make sure yours has a competitive edge that will catch the seller’s eye.
- During a short sale: Sometimes a short sale addendum will allow listing agents to send backup offers to the bank. During these situations, the bank is totally focused on the bottom line, so if you can make them a more attractive offer, they may be willing to work with you instead.
The bottom line
Submitting a backup offer is tricky. In some situations, it may do more harm than good and actually motivate the primary buyer to purchase the house. Fortunately, though, there is a useful workaround that carries much less risk.
Simply talk to the listing agent.
It’s fairly common in real estate to have a buyer’s agent express their clients’ continued interest to a listing agent when they’ve lost out on a property. The agent will ask to be kept in mind, if something goes wrong with a current deal. You can do the same.
It’s effectively the same thing as a backup offer with much less risk. The listing agent will still know to get in touch with you if the deal falls through, but since everything happens verbally, you won’t be legally bound to buy the property.