By Dian Hymer
One buyer suffered through sleepless nights after she accepted backup position on a property she wanted to buy. For days, every time the phone rang, she held her breath in anticipation wondering if this was the call to inform her that she got the house. She didn't get the house and a few months later she bought another one. Was the backup offer experience worth the anxiety?
A backup offer is an offer that's accepted subject to the collapse of another offer or offers. If the offers that are higher in seniority than the backup offer fall apart, the backup offer becomes primary without the property going back on the market. If you're in backup position, you're next in line to buy a property if the primary buyers fail to perform.
Sellers like backup offers because they tend to solidify the primary buyers' resolve to carry through with the purchase. If inspection issues come up, the primary buyers are less likely to renegotiate their contract with the sellers if there's another buyer waiting in the wings.
You may wonder why a buyer would consider being in backup position if it increases the chances of the primary deal going through. To be sure, accepting a backup offer is a gamble, and in most cases, a long shot. But, in some frenzied real estate markets, with lots of multiple bidding contests for listings, backup position may be worth the risk. For example, if the price of the home was increased significantly because of competitive bidding, there might be an increased risk of a deal falling apart. Maybe the winning buyer will get cold feet. Sometimes buyers bid higher than they can afford to pay in the heat of the race and regret their decision the next day. If this were to happen and you were in first backup position, your contract would be elevated to primary position without you having to go through another multiple offer competition.
First Time Tip: Buyers who accept backup position should make sure that the purchase contract includes a provision that allows them to withdraw from backup position. Without such a clause, you could wait in vain for the primary offer to collapse, while missing out on other homes that might suit your needs.
Sellers should carefully consider the merits of a backup offer before committing to it. If there are conditions in the backup offer that you can't live with, like a contingency for the sale of another property, you might be better off not to accept the offer as a backup at all. If you do accept it, you'll be obliged to proceed with that contract if your primary contract fails. Or you could counteroffer the backup offer to remove the contingent sale provision.
Buyers should be aware that sellers usually reserve the right to renegotiate the terms and conditions of the contract with the primary buyers, regardless of the backup offer. In this case, let's say the primary buyers discovered during their inspections of the property that the chimney was cracked, and they asked the sellers to repair it as a condition of closing. If the sellers agreed to the request, the primary contract remains primary.
The Closing: When there are multiple offers, the sellers might choose to offer backup position to more than one buyer. In this case, the backup offers are ranked: backup offer number one, two, three, and so on. If the primary offer falls apart, backup offer number one becomes primary. If this deal falls apart, backup number two becomes primary, and so on.
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