It’s no fun to be told that you are second best. But in some situations, being in second position can pay off.
For example, you could bid on a house and lose out to another buyer who offered a higher price or better terms. If you accept a counteroffer from the seller for first backup position, and the first buyer withdraws, you could end up being the lucky buyer after all. This happens fairly often, particularly in hot real estate markets when buyers make hasty decisions under the pressure of a multiple-offer bidding contest.
Some backup buyers put themselves through an emotional wringer while they wait to find out if the first deal fails. If you do accept backup position, try to detach yourself from the process and adopt a philosophical attitude. If it’s meant to be, it will happen.
HOUSE HUNTING TIP: Don’t sit back and wait until the first deal either fails or closes. You could lose precious time by doing so. You should continue to look at any new listings that might work for you. Make sure that your backup contract includes a provision that allows you to continue to look for a home to buy. The provision should enable you to withdraw from the backup contract at anytime, as long as it’s before you’re notified that your offer has been elevated to primary position.
Sellers like backup offers because they tend to reinforce the primary buyer’s resolve to close the sale. For instance, issues almost always come up during the buyer’s inspections. Buyers who know that there is another buyer waiting patiently for the deal to fall apart tend to ask for fewer seller concessions than they would if there wasn’t a backup offer.
For this reason, sellers frequently accept a lower price from a backup buyer than they otherwise would. This is done as an incentive to encourage a buyer to accept a backup position. Some buyers prefer to wait and see what happens to the first deal, rather than sign a counteroffer for backup position.
Sellers should keep in mind when they do accept a backup offer that they could end up selling their home to this buyer. So, the price and terms of the offer, and the buyer’s financial capabilities need to be something you can live with. There’s no guarantee that the primary deal with close.
It’s not always advisable for sellers to accept a backup offer. You may be better off going back on the open market if primary offer fails. It would certainly be better to start from scratch than accept an offer that looked precarious from the beginning.
Sometimes one offer is far superior to the rest. In this case, the sellers may feel that they will do better putting the house back on the market if the first deal falls apart. Market conditions are also relevant. If home prices are escalating, it’s less risky to go back on the market than it is when the market is softening.
Buyers who are offered backup position, but who chose to take a wait and see attitude, should think again. If you’re in backup position number one and the primary contract fails, your offer becomes primary without the house going back on the market. (A seller can accept more than one backup offer. If so, the backup offers are ranked: backup number one, two, etc.)
THE CLOSING: Buyers who are not in backup position when a listing goes back on the market, could find themselves competing with other buyers and paying a higher price.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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