Back up offers, are they worth writing?

You LOVE the house you just found and you want to write an offer!  However, you found out from your real estate broker that the house is under contract – meaning the seller has already accepted another offer. You are disappointed and feel like you have lost out on this house.  But you may not have.  It may be worth submitting a back up offer.

What is a backup offer?

It is an offer that the seller can fallback on if the existing transaction with the first buyer does not close. There are things that have to occur and contingencies that need be be met in order to close a transaction. This allows time for your agent to submit a contract to the seller with an clause stating that if the first contract should be cancelled for any reason, that your offer is the next in line to be accepted. The backup offer needs to be agreed to and signed by both the buyer and seller and will also often include an earnest money deposit.

Why do contracts fall through?

Most of the time what causes a contact to fall through is a contingency that is not met or can’t be negotiated.  Common contingencies include:

• Passing the home inspection.
• Appraising the home at value – not below the offer price.
• Securing a loan for the buyer.
• Selling the buyer’s current home.

Any one of these could cause the deal to fail.  Once failed, the seller would need to put the property back on the market.  Buy having a back up offer accepted, the seller does not have to go through the hassle of having to put it back on the market.

Are backup offers legally binding?

A backup offer is legally binding as long as both parties have signed it.  It then becomes the purchase and sale agreement – as long as the first contract was in deed cancelled. It is important to know that at this point, you will not be able to walk away from the sale for no good reason without forfeiting your earnest money.  If your contract includes contingencies, your earnest money is protected until the contingencies are waived.

Are there benefits to having a back up offer?

In the Greater Seattle area with inventory levels low and demand high, bidding wars are common. Having an accepted backup offer means the seller doesn’t have to go through the stress of putting the house back on the market and you will not have to go through a stressful bidding war.  Knowing this can provide you with a certain amount of security – especially if it is a home that you love.

What are the drawbacks to having a backup offer?

Backup offers can push the first sale to close quickly. Another thing to consider is, can you afford to tie up your earnest money? You may choose to continue to look at other homes while you remain in back up position – note: if you decide to buy another house, you may lose your earnest money on the back up offer.  Other things to consider are that waiting on a backup offer can also postpone your move date, any inspection contingency such as a faulty furnace could become an issue of yours to negotiate or accept.

To determine the pros and cons of submitting a back up offer on a home that you love, talk to your real estate broker to help you decide if submitting a back up offer is the right move.

For more information – call the Knowles Team powered by Keller Williams Greater Seattle at: (206) 653-0085

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