Your Door County dream home comes on the market, and you call your Door County real estate agent, who tells you the dreaded words: "There is already an accepted Offer, but the Seller is accepting SECONDARY Offers." Is this good news? What does it mean to you as a Buyer? What is a Secondary Offer in Door County real estate?
There is a lot of confusion over Secondary Offers (even with agents and broker). In this crazy Seller market, I am offering to add some advice to show how valuable it can be to STAY on the market and active even when you have received and have an ACCEPTED OFFER on your home as a Door County Seller, or how to continue to work to get EXACTLY the house you want as a Door County Buyer.
First---what is a Secondary Offer? A Secondary Offer is a second offer that is written on a property after an offer has already been accepted on that property. The first offer is called the Primary Offer and it stays primary until a contingency cannot or will not be be fulfilled on the contract by either the Seller or Buyer #1, and they decide to terminate via a Cancellation and Mutual Release form.
A Secondary Offer is an offer written by a second (or third) Buyer and is accepted by the Seller as what can be referred to as "a back up offer” or "Secondary Offer". The second Offer, once accepted by the Seller, stays in the secondary position for a set determined amount of days and can move up to first position if the Seller does something allowed by the contract that may break the contract (for example, electing not to cure a defect on the home inspection) OR if Buyer #1 fails to perform on one of the Buyer contingencies written in their contract and gives written notice to the Seller that they cannot fulfill their contract. An example of this may be not being able to obtain financing in the agreed-upon timeline.
In the instances above, a Seller would still have to advise the SECOND BUYER that there is a potential defect on the home that they have chosen not to cure (a Seller must disclose any defect when known) but they may also state that they have chosen not to cure that item, allowing a Buyer to elect to cure after closing.
How many Secondary Offers can Sellers Accept? As many as the Seller wants. The most I have ever allowed a Seller to accept is three, because then they also have to decide WHICH secondary Offer will become the primary if something happens to the first contract. Technically, a Seller can have one primary Offer and several secondary Offers. If the primary Offer fails to perform, the seller then has the right to then choose the best of the secondary Offers.
This is happening a lot in the current real estate climate for two reasons. First, it is about due diligence in representing the Seller if you are a listing agent The Seller has the right to get the best and highest price for their home with the fewest amount of contingencies, and it is the real estate professional’s responsibility to perform at this level for the Seller.
Do Secondary Offers ever get put into Primary Position? It truly depends on how badly a Buyer wants a home. In 2020, I had a transaction where the Seller accepted both a primary and secondary Offers, and then had some seller remorse. That Seller didn't care if EITHER party bought the property--in the event anything happened to either Offer, the Seller had decided to just keep the house. All parties had consulted legal counsel, and all parties followed their contracts to the letter of the law, but the Seller looked for language to allow outs--the Seller did NOT choose to cure items from the home inspection. If the primary Offer had issued a Notice, the Primary Offer could have walked away and allowed the Secondary Offer to become primary (they did not). The Buyer decided to accept the home "As Is", which was a win for the Seller in that it allowed the Seller to keep more money from the transaction because of fewer (or no) curing costs. When we see a primary Offer struggling (and they do, things happen), we ALWAYS continue to market the home, just as we always encourage secondary offers unless there are no contingencies. There are instances where a secondary Offer DID bump Buyer #1 out of first position when they could or would not perform. In a second transaction last year, a Buyer could not get financing terms, and the Secondary Offer DID become a Primary Offer and go to closing. In a transaction earlier this year, there was a COVID-driven delay on new construction and the Buyer decided not to incur additional financing expenses and ended the contract. There was a secondary Offer in place that then became the primary Offer, and they finished and closed on the home.
What are the impacts on the property? With a home inspection defect, there may be interpretation as to what is a serious defect, and what a Seller will accept. A Seller could choose to dig his/her heels in, like the example above, and then it would be the decision of the Buyer to remain primary or to look for a different property. And remember, a Seller does have to disclose defects. So if a Primary Buyer decides that they don't want to absorb the cost of a roof replacement (or if it will cause issues with a financing contingency) and the Seller has accepted a secondary CASH Offer, with someone that is willing to absorb that cost, Buyer #2 may be the one that ends up with the house.
So: How Do You Make a Competitive Secondary Offer in during a RED HOT Market?
If the listing agent tells you that the Seller is accepting secondary Offers, it means there are contingencies that the Seller is unsure of and they want the protection of a second (or second and third) Offer. It means that there is a chance someone else COULD be put in the primary position. If the property is truly a dream home for you as a Buyer, then you may want to be put in a secondary position. Now, you can also choose to terminate the secondary position as a Buyer (there is language in a contract that states that if you are not advise within a certain number of days that you can issue notice that you are withdrawing your secondary Offer--talk to your agent for more details about this provision). If you are making a secondary Offer--keep it clean. Put in a provision that the Seller must disclose any known defects that arise during a home inspection (ultimately, you'd like a provision that requires the Seller to submit any completed home inspection to you, if they are agreeable--remember, they must disclose, so this isn't a stretch to ask for). As always, we would ask you to direct any legal questions to your legal counsel. You may end up curing some defects on your own, or paying over listing price to get the home of your dreams, but it DOES happen. Secondary Offers do become Primary Offers, even in a hot real estate market.
If you're looking for a Door County home, I can help. Just be prepared, in this crazy Seller market of 2021, to perhaps accept a Secondary Offer position as a Buyer, because inventory is going under contract so quickly. You may end up being very glad that you did.