Should home buyers make backup offers?
Missing outon a home you’d like to own can be heartbreaking. But, not all home saletransactions close, so you might have a second chance. Or, you could considermaking a backup offer.
A backupoffer is an offer that is negotiated like any other offer until the buyers andsellers reach a price and terms that are mutually acceptable. A unique term ofthe agreement is that it is accepted as a backup offer subject to the collapseof a previously accepted offer that is in primary position.
In anactive, low inventory market, a seller might receive multiple offers and acceptmore than one backup offer. In this case, the backup offers would be ranked.For example, backup offer #3 would be subject to the collapse of backup offer #2and backup offer #2 would be subject to the collapse of the primary offer.
Backupoffers also come into play in softer markets. The best listings at the bestprices attract the most buyer attention regardless of market conditions. Evenin a slow market a prime listing can sell quickly. If you’re a little late tothe table and no one else beat you to it, you might look into submitting abackup offer. But, first, consider the pros and cons.
Onedisadvantage is that you may be tempted to postpone looking at any otherlistings until you find out if the first deal goes through. By doing so, youcould potentially miss out on other good properties.
HOUSEHUNTING TIP: If you decide you want a property enough to accept a backupposition, continue to look at new listings that fit your parameters. Also makesure that your contract includes a provision that allows you to withdraw fromthe contract without penalty at any time up until you are notified that youroffer is in primary position.
Anotherdisadvantage of being in backup position is that your commitment to buy theproperty could strengthen the primary buyers’ resolve to continue with thetransaction, even when issues come up like property defects that mightotherwise kill the deal.
Be awarethat the sellers may have the right to renegotiate their contract with theprimary buyers.
Because ofthese drawbacks, many buyers shy away from making backup offers. They prefer towait on the sidelines to see what happens with the first contract. A benefit ofthis approach is that the sellers might be easier to work with after having hada deal fall apart.
There is,however, a risk in this approach. An attractive listing could draw seriousinterest from other buyers. If so, one of them might end up in backup positionand preclude you from buying the property
When there’san accepted backup offer, a listing doesn’t come back on the market when theprimary contract fails. The backup buyer is elevated to primary positionwithout giving other buyers a chance to buy the property.
Beforedeciding whether or not to make a backup offer, try to find out how muchinterest there is in the property. If there are other buyers serious about theproperty, it might be worth your while to submit an offer for a backupposition.
The otherrisk of waiting to see if the first deal collapses is that you could findyourself in competition with other buyers who are also waiting to see whathappens.
A lot oftime and emotional energy goes in to making any offer. Some buyers would rathersave this effort for a listing that is definitely available to buy.
THECLOSING: The best stance to adopt if you’re a backup buyer is: If it’s meant tobe, it will happen.
Dian Hymer is author of “HouseHunting, The Take-Along Workbook for Home Buyers” and “Starting Out,The Complete Home Buyer’s Guide,” Chronicle Books.
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Copyright 2007 Dian Hymer
