My husband and I have been looking at homes with our Realtor for several weeks now. Over my lunch hour, the Realtor showed me the perfect home but by the time my husband got off work in the evening the sellers had already accepted an offer. My husband feels bad and wants us to try to make a backup offer and I am not sure how I feel about that. Could you please offer some advice?
Thanks for your great question. This is not an uncommon situation, particularly of a home in high demand with a great floor plan, perfect neighborhood and priced at fair market value. Let’s look at what a backup offer means.
A backup offer occurs when the seller already has an accepted offer. However there are most likely several contingencies in the seller’s first offer, such as a roof inspection, a termite/pest control inspection, HOA documents to be approved, seller’s disclosures, home appraisal at the purchase price and so on. There could be problems with the buyer’s loan or just plain old cold feet with buyer’s remorse setting in.
There are many items that could change the buyer’s mind. During the contingency time frame, the buyer’s earnest deposit money is well protected. For instance if the buyer backs out for just about any reason during their protected contingency period, the buyer will receive all of their deposit monies back. If the first offer hits a glitch, then the sale may cancel.
Oftentimes buyers become unrealistic with asking for the sellers to make too many repairs or ask the sellers to credit them large sums of money. In this situation, if the seller has a backup offer hanging in the wings they may not be as motivated to work with the first buyers with their request. This is especially true if the backup offer is for more money than the first offer. However the first buyer will always have the right to accept the responsibility of the repairs themselves and move forward with the contract. Realtors refer to this as leverage in the sellers favor.
Backup offers need to be in writing with acknowledgement of the existence of the first offer and will be subject to the first buyers canceling the contract in writing. Some believe that backup offers need to be equal to or greater in price than the first offer. This is not true. The backup offer can be whatever price and terms are agreeable to both the buyers and sellers. The good news is if this event did take place then the backup offer automatically becomes first buyer position and nothing more needs to be signed.
Keep in mind that backup offers are a legally binding contract. If you are in a backup position and you would like to still look at other homes for sale, then you need to make sure that the language is written into the backup contract. This will allow you to continue your home search instead of putting all your eggs into one basket. Usually backup offers do not require any deposit monies.
For sellers backup offers are usually welcome. When a buyer is in a backup offer, some might find it difficult to locate another home as they keep referring in their minds back to the initial property. When inventory is low, buyers may be wise to consider working with backup offers.
The biggest benefit to a seller is a better percentage of the possibility of getting their home sold. Another advantage is they most likely will receive a better offer with better terms and a higher price. Finally, they no longer have to keep showing their home to prospective buyers.
Kari McCoy owns the Kari McCoy Group, Residential Real Estate, at Lyon Real Estate. Call her at (916) 933-KARI (5274) or email her at firstname.lastname@example.org.