Properties are flying off the shelves fast in today’s fiery hot market, which can sometimes lead to deals made in haste on both the buyer and seller side. In these scenarios, having a backup offer in place can help the seller while allowing the backup buyer to maintain some kind of momentum in their home search.
Backup offers allow buyers who have missed out on winning the primary offer the chance to step in and replace the primary offer in case anything goes awry with the deal. Having these backup offers can be advantageous to both backup buyer and seller because neither needs to go through the process of the property going back on market and having to field or submit offers all over again. It also allows backup buyers to “wait in line,” so to speak, while continuing to search for other home options in the meantime.
“I think backup offers are a great thing — and I’m only going to speak from personal experiences — from both sides [of the transaction],” Tony Rodriguez-Tellaheche, owner and managing broker at Prestige Realty Group, told Inman.
Rodriguez-Tellaheche noted that only about 20 percent of backup offers he sees end up moving into the primary offer position for whatever reason, a factor that leads many agents to think that sitting in as a backup offer isn’t usually very useful for buyers. But, Rodriguez-Tellaheche asserted that there’s really no disadvantage for either side of the table in giving or accepting backup offers.
“As a buyer, you almost have nothing to lose,” Rodriguez-Tellaheche said. “If you don’t have any other options on the market, you might as well put in offers as backups and, worst case, multiple get accepted, you can back out of a contract if you have an inspection period. So you really don’t have anything to lose by waiting in line.”
“As a seller, it’s great to have backup offers, because deals fall apart, and in a market like this, you don’t want to be sitting on the market, where if the deal does fall apart for whatever reason, you don’t have to start searching for another buyer and you already have them in line,” he added.
As bidding wars increasingly drive home prices through the roof in a number of markets, deals are falling through when the house doesn’t meet appraisal and the buyer can’t cover the appraisal gap. In those cases, both backup buyer and seller are relieved there’s a secondary plan in place.
“The market is almost willing to pay anything for a home right now,” Rodriguez-Tellaheche said. “And the appraisers are still working with 30-day or 60-day comps, and they’re kind of living in the past, where, at least in the neighborhoods I’m working in, almost every week property prices are changing. I mean, I’m even seeing some properties increase price while they’re on the market as opposed to dropping prices because they see the comparables inching up and inching up and inching up.”
Some MLS’s, like the one in Rodriguez-Tellaheche’s market, even have a search filter feature that allows users to search exclusively for properties that are accepting backup offers, which makes it easy for buyers to pursue this option.
Matthew Dolan, a broker at Sagan Harborside Sotheby’s International Realty, agreed that backup offers could be advantageous for both buyers and sellers, but needed to be handled with care.
“A backup offer is either going to be a wedge that drives the primary offer out, or it’s going to drive it all the way home,” Dolan said. “So you gotta know what you’re doing.”
Backup buyers need to be prepared to bring everything they have to the table. If it’s attractive enough and anything goes even slightly awry with the primary offer, a strong backup offer may have a fair chance.
“It’s a waste of time if you’re not planning on going big,” Dolan said. “It’s the old ‘go big or go home.’ If you’re not going big, don’t waste your time. And also offer flexibility.”
Both Dolan and Mark Gellman, team leader at The Gellman Team at eXp Realty, told Inman they’d seen some sellers who need to move quickly accept an offer in haste, only to accept a backup offer later that ends up being much more attractive than the primary offer. At that point, sellers can be in a tricky position of remorse, but they can also use that backup offer to their advantage.
“We’ve seen sellers use it to their advantage to play hardball with the buyer that they have under contract to say, ‘great, we have a great backup offer — if you want to terminate, you can,'” Gellman said. “‘If you want to ask for us to do everything on the inspections, you can, but we’re actually going to do nothing and we have a great backup.'”
Dolan pointed out that everything depends on what’s included in each specific contract, but if sellers do end up with an amazing backup offer that puts the primary offer to shame, they may be able to find ways to terminate the contract and move on to the backup offer.
“If something is put in [the contract] that says, ‘subject to a mutually agreeable purchase and sale,’ an attorney could create a back door for them to then get out of the contract, should they get a backup offer,” Dolan said.
But, sellers should be sure to consult with a local real estate attorney before attempting this strategy or assuming it’s a possibility in their market or for their specific contract.
Any time earnest money or other funds are being transferred is also potentially a time when sellers can work to get a backup offer into the primary position, if funds aren’t transferred in a timely manner.
“If somebody accepts an offer on Sunday after an open house and the deposit check has not been delivered, you can theoretically try to wedge in there — and there’s a lot to this, it’s not easy — but you can try to get your backup offer accepted and the seller and the seller’s agent can say, ‘well, you didn’t give me a deposit check so therefore we’re going with this better offer,'” Dolan explained.
Even if a seller doesn’t end up using a backup offer at the end of the day, having one in writing can be advantageous in this market for sellers who are trying to get top dollar.
“It really makes the appraisal process a lot easier,” Dolan said. “Because you can even show the appraiser and say, when he says, ‘well, that seems overpriced,’ ‘well, I’ve got four offers right here, and they’re all in a similar range, so this is the definition of where the market is.'”