Sometimes the spirit of competition can be a frustrating thing, especially when you find the home of your dreams, and either your offer was rejected, or you come to discover that a competing offer was already accepted before you had a chance to make an offer. Although, it’s likely that the first position offer will probably result in a closed sale – it’s never a good idea to assume that you don’t have any chance at picking the home up as a back-up buyer. Every year, I see examples of motivation and directional changes being made by both buyers and sellers that turn the tide from what would be easier to just assume will happen. So, the moral of the story when you’re only option is ‘back-up’, you never know – your persistence could pay off.
So let’s define what that persistence looks like. You’re standing inside the kitchen of ‘the one’, and your agent is on the phone with the listing agent to check on its availability, and he hangs up with bad news. Or, you’ve already made an offer on this home before the seller signed with another buyer, knowing that you may encounter competition. The word is that the seller has already signed an offer with another buyer. This was the home that appealed to you the most, and you truly wish the circumstances were different. You cannot legally outbid the first position buyer, because the seller is contractually obligated to them – even if you’re willing to offer more money or better terms. Your only other option is to get a signed back-up offer.
If you’ve already made an offer that was rejected by the seller, it’s time to figure out what it was that caused the seller to reject it. If you can offer the seller terms and conditions that would be more agreeable, you will want to revise your offer and request to be in 2nd position. If this back-up is your initial offer, make it a reasonable one – have your agent help you clarify value and terms to ensure that you have a firm commitment from the seller. While you and your agent are keeping tabs on any status change for that home, stay active on your search for other homes. And worst-case scenario, at least this experience with finding the home you want helps clarify what interests you most.
One thing that is certain in this business is that we never truly know what is going to happen from signing an offer to closing escrow. Your diligence in being a back-up buyer may prove to be successful! Speaking from my experience, there have been several occasions where a back-up buyer of mine has seen success in being moved to first position – and sometimes they haven’t found anything else yet. So let’s talk about three common reasons why you may come out ahead as a back-up buyer.
The first buyer’s financing ability may fail. It happens - a buyer that is pending sale loses his pre-approval, or gets it reduced enough to cause failure. Sometimes buyers make poor choices in the midst of finishing escrow, like buying a new car, or racking up more debt on a credit card. It’s vitally important to NOT make large purchases that cause a shift in your debt to income ratio while you’re pending sale on a home. Another reason for financing to fall through is if the buyer loses their job. If a buyer gets laid off in the midst of buying a home, it’s highly unlikely that he’s still going to qualify for a loan.
Buyer walks after an inspection. This subject by itself can be caused by a dozen reasons or more. Sometimes it’s simply about cooler heads not prevailing. The seller may be too firm initially to make any reasonable repairs, causing the buyer to get frustrated and quit. Or the buyer may have been expecting too much, causing the seller to reject their proposals. Your agent may be able to gather insight on what killed the first deal, in hopes that the experience is not revisited with you.
First buyer may terminate the agreement for other reasons. This also has been known to happen. As I mentioned earlier, sometimes motivation and directional changes happen for both buyers and sellers. A buyer may decide not to move forward after getting tragic news, like a death in the family. Or, the buyer may receive an opportunity for a job promotion which requires relocating elsewhere. Life happens.
Never take an opportunity lightly. It’s disappointing to not be first when buying your dream home, but persistence may prove your circumstances to be a blessing in disguise. Keep the faith in your pursuit, great things are coming your way!
Are you in the market to buy, and are not committed to an agent? I have more than 18 years of experience in Residential Real Estate, we should meet soon and discuss your plans for the near future. Let’s love your new home together!