What Does Accepting Backups Mean in Real Estate?
Understand the strategic implications of real estate backup offers for sellers securing options and buyers positioning for a property.
Understand the strategic implications of real estate backup offers for sellers securing options and buyers positioning for a property.
When a property listing states it is “accepting backups,” it signals a strategic approach by the seller. This practice involves securing secondary purchase agreements for a home already under contract with a primary buyer. It acts as a safety net, providing sellers with alternative options if the initial transaction encounters unforeseen difficulties. This strategy allows a seller to maintain momentum and avoid relisting the property entirely if the primary deal fails.
A property listed as “accepting backups” is not yet sold; it is “under contract” or “contingent” with a primary buyer. This means a purchase agreement has been signed, but the sale is dependent on certain conditions being met. These conditions, known as contingencies, are standard clauses in real estate contracts designed to protect both buyers and sellers. Until these contingencies are satisfied, the transaction remains vulnerable to falling through.
Common contingencies include financing, appraisal, inspection, and the sale of the buyer’s current home. A financing contingency allows the buyer to withdraw if they cannot secure a mortgage. An appraisal contingency protects against the home appraising for less than the agreed-upon price. An inspection contingency permits the buyer to renegotiate or cancel the deal if significant issues are discovered during a home inspection. The home sale contingency, where the buyer needs to sell their current property first, also introduces a layer of uncertainty.
Primary offers can collapse due to various factors. Financing issues are a frequent cause, such as a buyer’s loan not being approved due to changes in financial status or credit score. Significant problems uncovered during a home inspection or a low appraisal can also lead to renegotiation or termination of the contract. Buyers may also experience “buyer’s remorse” or find another property, choosing to withdraw if a contingency allows. Approximately 5% to 10% of contingent real estate transactions may not reach closing.
A backup offer is a legally binding contract that becomes active only if the existing primary offer fails. From a buyer’s perspective, it positions them next in line for a desired property, offering an opportunity to acquire a home they might have otherwise missed.
When crafting a backup offer, it should be as complete and compelling as a primary offer. It includes the proposed purchase price, specific terms, and all relevant contingencies such as financing, inspection, and appraisal. Buyers submit earnest money, often 1% to 3% of the purchase price, into an escrow account with their backup offer to demonstrate commitment. This money is returned to the buyer if the primary offer closes successfully.
The offer must clearly state its status as a backup through a specific “backup addendum” or similar contractual language. This addendum confirms that the agreement is contingent upon the termination of the primary contract and outlines the conditions under which the backup offer would become effective. While in a backup position, a buyer’s obligations are generally limited, but they should be prepared to proceed quickly if their offer is activated. Buyers should continue their property search, as the primary offer may still close.
Sellers choose to accept backup offers to reduce risk and maintain momentum in the selling process. Having a signed backup agreement provides a safety net, ensuring the seller does not have to restart the entire marketing and negotiation process if the initial deal falls through. This can save time and money, and avoids the potential stigma associated with a property returning to the market.
Accepting a backup offer also provides the seller with leverage. The knowledge that another buyer is waiting can motivate the primary buyer to adhere to deadlines and avoid excessive renegotiations or delays. Sellers can accept multiple backup offers, prioritizing them in a specific order. Sellers should be transparent with all parties about the existence and status of backup offers.
Despite having backup offers, sellers are legally bound by their primary contract. They cannot prematurely terminate the initial agreement to pursue a backup offer unless a contingency in the primary contract is not met. Some primary contracts may include a “kick-out clause,” which allows the seller to continue marketing the property and accept backup offers, with a provision to give the primary buyer a short timeframe to remove their contingencies if another offer is received.
A backup offer becomes active and transitions into a primary purchase agreement when the initial contract is formally terminated. This termination occurs due to the failure of a contingency, such as the buyer being unable to secure financing, a low appraisal, or unresolved issues from the home inspection. A mutual release agreement between the primary buyer and seller can also terminate the contract.
Once the primary contract is null and void, the seller’s agent formally notifies the backup buyer that their offer is now in the primary position. This notification often requires specific written communication as outlined in the backup offer addendum. The date of this notification becomes the effective date for the newly activated contract.
Following activation, the terms and timelines of the backup offer, including closing dates and contingency periods, are reset based on the new effective date. The buyer then proceeds with their due diligence, such as conducting inspections, securing financing, and obtaining an appraisal, as if it were a new primary transaction.