The Backup Offer
The recent increase in multiple offer situations has resulted in another offer phenomenon that we haven't seen for awhile, the backup offer. A backup offer is just that, an offer made and accepted in a backup position to a primary offer. The backup is subject to the rights of the existing offer and offers benefits to Buyer and Seller.
Not every situation warrants writing a backup, but with the right circumstances it is helpful and rewarding. A backup offer allows Sellers to relax knowing that if something goes wrong with the primary they have another party willing to buy their home on terms and conditions acceptable to them. With the confidence of having an accepted backup offer, Sellers also have more options when faced with proposed mid-escrow negotiations. The backup helps keep the primary Buyer on track. If they don't perform someone else is ready to.
Most offers are negotiated to minimize mid-escrow negotiations, leave nothing to later agreement. Sometimes, however, items come up that cause the parties to have to come to an agreement. They can include a delay in the Buyer's loan process, a higher than expected repair cost, or many other time or money related items. With a backup offer to fall back to, the Seller's position is strengthened when asked for such concessions.
Backup Buyers can keep looking at other properties and if they find one to their liking before being notified in writing that they are being moved to primary position they can rescind their backup offer. A critical benefit to the backup offeror is that if the existing transaction falls apart the backup comes in to play. Properties that warrant a backup offer are generally a cut above their market competition. When such a property falls out of escrow there can be multiple offers on it. With a backup the property is not put back on the market, the backup Buyer has no competition at that point, it simply moves to primary position.
The backup Buyers' position can be frustrating as they must wait to see the results of something comes out over which they have no control. Things happen, however, and their efforts can be worth their while, sometimes unexpectedly. The joy of moving to primary position and buying the home you want is incredible and very rewarding.
Our Advice: Your agent can help you with perspective on the situation. If the circumstances warrant it, write a backup offer. If the primary hiccups you could buy the home you want. If you find a suitable alternative before becoming the primary you can buy it without consequences from your backup endeavor. If the primary performs at least you had a chance to buy the property that you would not otherwise have had. Sellers shouldn't jump from the pan to the fire. If the primary offer is weakening, make sure that the cause won't diminish the backup Buyer's enthusiasm for the property before cancelling the primary. The primary Buyer has rights throughout the process that must be respected legally and morally. They made the first best offer and as long as they are continuing to act in good faith it is important to work with them.
A backup offer can change the dynamics of an escrow, and everyone must be careful to respect the rights of all involved. They help minimize unforeseen obstacles, or chicanery, but must not be used to create new ones. Use them as intended... if the primary doesn't perform then there is someone else that will.
When it comes to choosing professionals to assist you with your real estate needs... Experience is Priceless!
Lisa Wetzel and Jim Valentine are real estate agents with RE/MAX Realty Affiliates in Gardnerville. They are short sale and foreclosure specialists and certified distressed property experts. Contact them at firstname.lastname@example.org.