Carey Chesney4-minute read
UPDATED: January 30, 2023
Buying a house is one of the most fulfilling endeavors you get to undertake. Envisioning your family in the perfect new space, planning for the future, enjoying all the anticipation and excitement can be a truly rewarding experience.
However, it can be incredibly stressful as well. As you search to find your dream home, you might get discouraged and start settling on houses that don’t really get you that excited. Or, maybe you find that perfect home and it turns out it's somebody else's perfect home as well.
When multiple people want the same house that’s for sale, the bidding war begins. Unfortunately, sometimes your offer isn't the one accepted, which can lead to a crushing feeling. Fear not, because this is where the backup offer in real estate comes swooping in to provide a glimmer of hope.
A backup offer in real estate allows for a seller to have a second buyer lined up through a binding contract. Should the first offer not go through, the backup offer would then be accepted. This gives the second-place finisher during the original round of offers a shot at actually getting the home.
If you decide to go this route, keep in mind that you may need to make an earnest money deposit along with your backup offer. This shows the seller you are serious about moving forward with your offer if the first one falls through. You can withdraw the backup offer at any time, like if you found another house you want to make an offer on, but if the seller decides to accept before you withdraw, the offer is binding.
When you really want a house, you put your best foot forward when you submit an offer. That means offering the highest sales price you are comfortable with, a large earnest money deposit and a large down payment on the loan (or cash).
Even after you make all this happen, sometimes there’s a better offer out there that gets accepted. Now is the time to talk to your agent about a backup offer. The good news is, most people don’t make them, so even if you didn’t finish in second place in the bidding war, you can revise your offer to make sure it’s enticing enough for the seller to consider it as the backup.
Sellers like backup offers. It allows for them to have leverage during the negotiations with their current offer. For example, if the buyers are asking for too much during the inspection period, the seller can walk away, knowing they have another offer, sometimes an even better one, waiting in the wings. Knowing this, you can make your backup offer as appealing as possible, increasing the likelihood of getting the home.
One disadvantage of the backup offer is, if the first offer knows about it, they might be motivated to speed up the sale process to avoid losing out on the house. This means not asking for a lot during inspection and employing other tactics to rush toward the closing table.
Another drawback of backup offers is that they are a legally binding contract. That means you must move forward with the sale if the seller accepts it after moving on from the first buyer. This may seem like a benefit right after you submit it and it is for a short period. The longer you wait though, you might realize having your backup offer out there is hindering your home search.
This is because if you find another house you want to make an offer on, the backup offer you have out there complicates things. For example, if you want to make an offer on a new house, you may need to rescind your backup offer on the previous one so you can get your earnest money deposit back to put on the new house. Then, if your offer on the new house doesn’t get accepted, you are left with neither an accepted offer on the new house nor a backup offer on the previous one.
Figuring out how much your offer should be, whether it’s a first offer or a backup, is a complex process. When submitting a backup offer, lean on the expertise of your real estate agent for advice and consider factors like the mortgage preapproval, contingencies, and, of course, sale price.
Sale price is the biggest factor, so make that as high as you can for a backup offer. Remember, it is all about making your offer so appealing that the seller will be looking for any excuse to stop working with the first offer and start working with you.
If you are not buying a home with cash, make sure your preapproval from your lender is submitted with the backup offer. This shows the seller that you have your finances in order to buy the home if they decide to start working with you on completing the sale.
Contingencies like inspection and appraisal are the seller’s greatest source of anxiety during the home sale process. They present roadblocks where the buyer can walk away or ask for more money or repairs from the seller.
Keep this in mind when submitting your backup offer, and make things like home inspection contingencies more attractive to the seller. Don’t waive inspection completely, but consider adding language to the contract that indicates you won’t ask for small items during this period of negotiations.
The backup offer in real estate represents a “Hail Mary” of sorts. It’s your last chance to get the house you want after your initial offer wasn’t accepted. It gives you hope, but be sure to temper that with realistic expectations.
If it doesn't work out, remember that there are plenty of other houses out there that might be just right for you and your family. Ready to learn more? Read up on the steps to buy a house.
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Using the knowledge and strategies outlined here, work with your real estate agent to prepare, negotiate and understand how to make an offer on a house.
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