Backup Offers: Your Second Chance At Your Dream Home

Mortgage Dove

Backup Offers: Your Second Chance At Your Dream Home

You found your dream home for sale, but someone else made an offer. It might seem like you lost your chance but don’t give up hope just yet. Sometimes, home deals fall apart because of different reasons like finances or conditions not being met. It's a good idea to be ready just in case the deal doesn’t work out and you can step in.

That’s where the backup offer comes into play.


What's a Backup Offer?

A backup offer is when someone makes an offer on a house even after the seller already accepted someone else's offer. Sellers do this in competitive markets with low housing options.

Like any offer for a house, a backup offer means the buyer and seller sign a legal deal. But here, it says if the first buyer's deal falls apart, the backup offer becomes the main one. The seller has to mention they can consider backup offers in the contract with the first buyer.


How Buyers Can Make a Backup Offer on a House

Making a backup offer on a house is pretty much like making a regular offer. The seller treats and considers a backup offer just like the primary offer, so you must plan well if you want yours to be accepted.

First, team up with a real estate agent who knows their stuff to determine a fair price. They know your area well and can tell you what a reasonable offer looks like.

Setting the Right Price for Your Backup Offer

Getting the price right can be tricky. You want to offer enough for the seller to say yes. How much you should offer depends on whether your area favors buyers or sellers.

In a buyer's market, where houses stay on the market for a while, offering the listing price or a bit less might work. Your backup offer acts as a safety net for the seller, so they might consider taking a slightly lower price than what's already on the table.

But in a seller's market, where there's a lot of competition, you might need to offer more. To boost your chances, offer more than what they're asking. Sometimes, sellers in hot markets accept multiple backup offers, but it's rare for backup offers after the first one to matter much.

Making a Solid Offer

Like with the main offer, ensure your backup offer is strong. Having a mortgage approval letter ready and asking for fewer conditions, like skipping the home inspection, shows you're serious about buying and closing the deal smoothly.

Sellers want to know you've got the cash for closing day. All-cash buyers need proof of funds, while others can impress with a higher bid and a solid mortgage approval letter proving they're suitable for the loan.

All in all, cash offers usually win, but a higher bid supported by a strong approval letter showing you're within your loan limits can also do the trick. Aim for the best possible mortgage approval to stand out.


For Buyers: What to Think About Before Making a Backup Offer

If you're considering making a backup offer, here are some things you should consider before diving in.

Getting Accepted Means You're Next in Line

A backup offer happens when both the buyer and seller sign a contract that kicks in only if the primary purchase agreement falls through. Just having the second-best offer doesn’t automatically put you in the backup position if the first deal fails.

For sellers, accepting a backup offer means they're covered if the initial buyer backs out. They won’t have to go through the hassle of relisting the property. For backup buyers, it means securing the house without competing with others if the primary deal falls apart.

Chances of Getting Accepted Are Slim

While you might have heard stories of deals collapsing due to post-inspection or appraisal issues, most home purchase contracts go smoothly. This means your backup offer might not come into play, and the time spent waiting could be used to find other available homes.

However, a backup offer might be worth it if you're dead set on a particular property and already own a home. But beware, the initial contract could've failed due to problems found during an inspection.

Backing Out of a Backup Offer Can Be Tricky

Continuing to search for houses while waiting for a decision on your backup offer might put you in a tough spot if you find another preferred home. Even if you back out, getting your deposit back might take time. This delay could hinder making a quick offer on another property.

Inspection Conditions Matter

If the primary offer falls through and yours is accepted, consider why the first one failed. Issues like financing problems are less worrying than property-related concerns. While avoiding excessive contingencies is wise, having an inspection contingency is crucial. It allows you to back out if repair issues aren't resolved, safeguarding you from being stuck with a problematic property.

You might need to waive the inspection if sellers won't accept contingencies. Regardless, getting a home inspection is a good idea to know what repairs might be necessary.


For Sellers: What to Think About Before Accepting Backup Offers

Having a backup offer on your home can be advantageous, but there are some potential drawbacks you should consider.

Ready Buyer in Line

A backup offer ensures you won’t have to restart the selling process if your first buyer backs out. It secures another buyer ready to step in, potentially saving you time and stress.

Motivation Boost for Current Buyer

Knowing there are backup buyers interested in the property might motivate your current buyer to move swiftly towards closing to secure the deal, fearing losing out to backup buyers.

Market Risk Involved

Both the seller and buyer are bound by the backup contract, which carries a market risk. If the real estate market changes between signing the backup contract and the first buyer exiting the deal, either party might feel disadvantaged.

If prices surge, the seller might regret committing to the earlier price. Conversely, if the market dips, the buyer might realize they've agreed to pay more than the current value.

Considering Future Market Trends

In a continuously rising market, sellers might hesitate to commit to a backup offer if they anticipate higher profits by waiting a bit longer to sell. If you foresee significant potential gains shortly, holding off on a backup offer might be preferable.


The Bottom Line

If someone else already got the house you wanted to buy, backup offers could be a good option. But both buyers and sellers need to weigh the pros and cons of making an offer on a home that's already spoken for. Whether it's a good move depends on your situation and how open you are to being flexible.

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