Is It Worth It to Put In a Backup Offer?

A backup offer in real estate allows a buyer to purchase a desired home even after another buyer has secured an initial contract. This strategy applies when a property is “under contract,” meaning a seller has accepted an offer, but the sale is not yet finalized. It can be a strategic move for those who have found a home they truly want but missed out on the primary offer.

Understanding Backup Offers

A backup offer is a legally binding agreement submitted by a buyer on a property already under contract with another buyer. This agreement becomes active only if the primary offer falls through for any reason. If accepted by the seller, a backup offer establishes a specific order of priority, placing the backup buyer next in line to purchase the home.

Sellers are not obligated to accept a backup offer, but doing so provides a safety net should the primary deal encounter issues. When a property is “under contract,” an offer has been accepted, but conditions or contingencies must still be met before closing. These often include financing approval, a satisfactory home inspection, or an appraisal that meets the sale price.

In contrast, a property listed as “pending” signifies that all contingencies have been satisfied, and the transaction is closer to completion. While a deal can still fall through at the pending stage, it is far less likely than when a property is merely under contract. A backup offer is more relevant for properties that are “under contract” rather than “pending.”

Strategic Considerations for a Backup Offer

Submitting a backup offer can be a strategic move, particularly in competitive housing markets where inventory is limited and desirable properties often receive multiple offers. It allows a buyer to get “next in line” without the immediate pressure of a bidding war, should the primary offer encounter unforeseen issues.

This approach is advantageous for unique or highly sought-after properties where a buyer has a strong preference for a specific home. If the primary buyer’s deal collapses, the backup offer automatically moves into the primary position, avoiding the need for the property to be re-listed and potentially attracting new competition.

A backup offer also demonstrates serious intent to the seller, which can be appealing. While waiting for a primary offer to resolve, the buyer can continue their property search. However, buyers should be prepared for the possibility that the primary offer might still close, as statistically, a majority of contracts do.

Buyers should also consider their own patience and flexibility. The waiting period for a backup offer to activate can be uncertain and prolonged. If the backup offer is accepted, the buyer is legally committed to the terms, which could complicate pursuing other properties found during the waiting period. Weigh the potential for securing a highly desired home against the uncertainties and the tying up of financial resources, such as an earnest money deposit.

Crafting a Backup Offer

Crafting a backup offer requires the same level of detail and attractiveness as a primary offer, as it must be ready to convert quickly if activated. The proposed purchase price is a central component; in competitive markets, offering above the asking price might be necessary to make the backup offer appealing. Conversely, in a buyer’s market, a slightly lower offer could be considered due to the security it offers the seller.

Contingencies are important elements that protect the buyer. These include:

• A financing contingency allows the buyer to withdraw and reclaim earnest money if they cannot secure a mortgage within a specified timeframe, such as 30 to 60 days.
• An inspection contingency provides a period, 7 to 14 days, for the buyer to conduct a thorough home inspection and negotiate repairs or withdraw if significant issues are found.
• An appraisal contingency ensures the property appraises for at least the purchase price, protecting the buyer from overpaying and the lender from over-lending.

An earnest money deposit signals the buyer’s serious intent and commitment to the purchase. This deposit, ranging from 1% to 3% of the purchase price, is held in an escrow account by a neutral third party until closing. Specific timelines for all contingencies and the overall closing process should be clearly defined within the backup offer. Working closely with a real estate agent is important to ensure all necessary disclosures and legal requirements are met, and the offer is structured to be both strong and protective of the buyer’s interests.

The Backup Offer Process and Potential Outcomes

After a backup offer is crafted, it is formally presented to the seller. If the seller chooses to accept it, they do so as a backup position. The offer becomes active only if the primary offer terminates. The seller may accept multiple backup offers, usually lining them up in the order they were received, though this is less common beyond the first backup.

If the primary offer falls through, the backup offer moves into the primary position, and the process to close on the home begins without the need for the seller to re-list the property. The backup buyer is then formally notified that their offer has become active. At this point, the backup contract proceeds as a standard purchase agreement, subject to its own terms and contingencies.

If the primary offer closes, the backup offer becomes void. Any earnest money deposited by the backup buyer is returned in full. While earnest money is tied up during the waiting period, it is protected if the primary deal goes through or if the buyer withdraws due to a contingency outlined in their backup contract. However, if a buyer decides to back out for reasons not covered by a contingency, they risk forfeiting their earnest money.