What is a Backup Offer? How Does A Backup Offer Work?

By
Real Estate Broker/Owner with Providence Group Realty TREC# 0608931
https://activerain.com/droplet/4nBc

Back up vs. Backup

Backup (one word)

Noun or Adjective

(noun) The checkout line was stacked 20 customers deep, so the cashier called for backup.

(adjective) It pays to have a backup plan in place.

Back up (two words)

Verb

(verb) Let's back up for a second.  Can you back up your claims with facts? 

(verb) Smart business owners back up the company database.

Common Misspelling

Back-up, backup's backups'

 

In real estate, after a Seller has contracted to sell a home to a Buyer, a Seller may still consider a backup offer. Since most buyers condition their offers to purchase homes subject to inspections and financing approval, it is possible that a Seller could lose the first deal they accepted if the Buyer backs out or cannot perform.

A Seller may negotiate a backup offer just as they would with a primary offer. Providing parties find an agreement, a backup offer becomes an executed contract, for which a backup buyer will place earnest money and an option fee toward. A Seller may only have 1 executed backup offer in place at a time.

In the event that the primary contract terminates, the backup offer immediately takes the primary position of engagement, and saves a Seller from having to return to market or reconvene showings. It saves a backup buyer from having to compete with less-committed buyers who weren't willing to submit a backup offer,  and may even create the opportunity for a lucky backup buyer to benefit from receiving a copy of the prior buyer's inspection report.

Reasons a Seller May Welcome and Accept a Backup Offer

  1. Should the primary buyer terminate, Seller can avoid going back on market / continuing to show
  2. Helps Seller put more pressure on a primary puyer to keep all original contract terms in place
  3. Allows Seller to be less negotiable with a primary puyer & potentially incite a primary buyer to terminate

Reasons a Seller May Not Consider a Backup Offer

  1. Seller has strong confidence in the primary offer and doesn't want to waste another buyer's time
  2. Seller would prefer to go back on market in hopes of attracting a multiple offer scenario
  3. Seller feels confused about the process and doesn't understand the reasons to consider a backup offer

A backup offer requires a buyer to have skin in the game...

Just like a regular offer that receives Seller acceptance, a backup offer will require a Buyer to place earnest money toward the contract, and pay the Seller an option fee at the time the backup offer is executed.  A savvy Buyer's Agent can strategically structure the terms so that a nominal amount is provisioned up front and additional funds follow the moment a backup contract becomes the primary contract.

Reasons a Buyer Should Consider Placing a Backup Offer

  1. Secures a Buyer's place in line should the primary contract terminate
  2. Has the power to compel a Seller toward becoming uncooperative with a primary buyer, and thereby incites termination

Reasons a Buyer May Not Want to Place a Backup Offer

  1. Requires money up front, which could negatively impact buying power toward an available property
  2. Will cost the Buyer the option fee should the backup offer become primary and the Buyer has already engaged another contract on a different property.

Do backup offers work? ABSOLUTLEY!! 

When we were personally shopping for our current home, we were a bit late to the table with our offer. We were devastated, and although we continued our search, nothing seemed to compare with the 'one we lost'.  We decided to offer a very attractive backup offer during the primary buyer's option period, and the Seller accepted our backup!  

On the final day of their option period, the primary buyers terminated. We found out later that they had requested some hefty (and unnecessary) repairs from the Seller. Our attractive backup offer gave them the confidence they needed to so NO to overly-demanding buyers.  When our contract became primary, we did the happy dance in our jammies and never looked back!

If you want accolade-winning buyer representation services and a Realtor® who thinks outside of the box to help make your dreams come true, contact Providence Group Realty today at  469.645.6363 for assistance with your Texas home search or Texas relocation effort.

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Rainmaker
851,596
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Agent

Buyers need to get comfortable with placing a back up offer in this heating market! Sometimes it's the back up plan that works out.

Sep 20, 2014 11:50 AM #1
Rainmaker
689,122
Bill Reddington
Re/max By The Sea - Destin, FL
Destin Florida Real Estate

Haven't had much luck with back up offers but that could change. Every situation is different. Depends on the terms of the first offer.

Sep 20, 2014 02:45 PM #2
Rainmaker
828,072
Troy Erickson AZ Realtor (602) 295-6807
Good Company Real Estate www.ChandlerRealEstate.weebly.com - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

I am a huge proponent of backup offers. A couple of years ago, it seemed like almost half of the transactions were not closing, so it was critical for sellers to accept backup offers.

Sep 20, 2014 02:59 PM #3
Rainer
247,389
Nicholas Costantino
Engel & Völkers - Hoboken, NJ
CRS, ASP, e-Pro

With the market as hot as it is I am seeing more and more backup offers being accepted.

Sep 21, 2014 12:41 AM #4
Rainmaker
162,386
Amanda Thomas
Providence Group Realty - Plano, TX
​Broker, SRES®, BPOR, MCNE, ​Certified DRS Agent™

Chris Griffith - We are having more success with backup offers right now than primary contracts! :-)

Bill Reddington - Very true. The dynamics of the primary offer are an 'unknown' unless the listing agent can reveal them. It helps to have information about the solvency of the primary contract to know whether the backup has legs.

Troy Erickson - That is what we are seeing in the DFW Metroplex. The Seller's market is causing buyers to compete in multiple offer scenrios at the onset of each listing. Buyers, feeling that they have overpaid, tend to have remorse under the option period. Often, it seems like self-sabatoge when we consider the silly requests or price change gaps that make deals come apart. And, it ALWAYS suprises us to hear that a Seller isn't interested in taking a backup offer... That seems short-sighted in most cases.

Nicholas Costantino - It is so interesting to see feedback from other states and markets, and knowing that we share common trends in the industry. Thank you for sharing the NJ perspective. :-)

Sep 21, 2014 03:06 AM #5
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Rainmaker
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Amanda Thomas

​Broker, SRES®, BPOR, MCNE, ​Certified DRS Agent™
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