Articles and Advice

What Is A Backup Offer And Should You Make One?

A backup offer may be the right move to secure your dream home. Here's how to know when to make one.

For more than a year now, would-be homebuyers have needed to be more creative than ever to make their offers more attractive to sellers. The market dynamic is changing with interest rates going up, but buyers still need to look for every possible advantage.

The stock of available homes out there is still far lower than their demand. With that in mind, you may find yourself making an offer on a home that already has qualified buyers bidding on it. This can be troublesome, but a backup offer will help you move toward your goals.

What Is a Backup Offer?

Let's say you've found the home of your dreams, but you're a little bit late to the party. The bidding war is already over and the seller has selected an offer. That would seem to be an open and shut case, and in some situations, it is. But in many others, a backup offer can help you stay in the game.

As you make a backup offer, you acknowledge that another offer has already been made and accepted. However, you have the opportunity to have your offer considered first if anything happens to cancel the offer ahead of you. Most often, this happens when another buyer's financing falls through.

When Is a Backup Offer Helpful?

Backup offers are usually not very helpful when your competitors are "cash in hand" buyers, such as real estate investors. But a backup offer can come through and make a difference in various other situations. In fact, they are especially useful in cases where the other buyer pulls out for their own reasons.

For example, a home inspection might uncover problems with the roof, electrical system, or plumbing. A buyer with conventional financing might not be able to go forward with the transaction unless the issues are fixed. If they decide to walk away, then your backup offer can be entertained.

Is a Backup Offer Binding?

A backup offer is binding on the seller. He or she must consider your offer next. The seller cannot look at other offers first. Most of the time, no marketing is done on the property while a backup offer is waiting. However, you still have the opportunity to withdraw your offer.

A backup offer takes the form of a formal written contract that should be overseen by your real estate agent and a qualified attorney. It is vital to protect your interests by designing your offer so you can withdraw without penalty if needed — as you might want to if a home inspection turns up issues.

What Happens If the Original Offer Goes Through?

If the original offer on the property goes through, you'll get back any earnest money you placed into escrow as a potential buyer. You are released from any other obligations and can continue your home search as normal.

Can a Backup Offer Result in a Better Price?

In a slow market, it may be possible to save a few thousand dollars by making a backup offer below the asking price. This can also be appropriate if the home has been on the market for a long time and seems difficult to sell. In a hot market, a backup offer needs to be competitive and offer incentive for the seller.

In most cases, a backup offer delivers very little risk and high potential rewards. Work with your real estate agent to develop a backup offer that meets your needs. It may just win the day, even if you weren't first in line to buy the home.

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What Is A Backup Offer And Should You Make One?

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