A back up offer is when a second buyer makes a secondary offer and waits to see if the original buyer’s deal falls though.
If it does, the second buyer becomes first in line. From the seller’s viewpoint, back up offers are a great way to keep an ace up their sleeve. From the buyer’s side though, back up offers need to be carefully thought out.
To submit a backup offer, the seller must first complete a back up addendum. The second buyer puts down earnest money and goes through the contract and negotiation process. If the first offer gets pulled, the second buyer slides into the primary position automatically.
A back up offer is a legally binding contract.”
When a back up offer does become the primary, it often goes to closing much faster because the title company has already completed all of the required legwork.
A back up offer can actually clinch the sale…for the first buyer. It provides an incentive for the first buyer to move forward. Knowing that they are in competition for the home can make them to overlook minor items and push them into the sale.
If the sale breaks down, the reason it fails is very important. Sometimes loans do not get approved because the borrower doesn’t qualify.
Click here to learn the difference between the terms pre-qualified and pre-approved.
There are other reasons for a primary offer to fall through. If the appraisal price does not support the loan amount, the lender will not fund. There may also be lender required repairs because a home inspection turned up a problem.
If the first buyer backs out due to a structural issue such as a damaged roof or foundation, you should think long and hard before you proceed with your back up offer.
If you do make a back up offer, ask for a copy of the inspection done by the first buyer.”
If you are a cash buyer, lender required repairs are something that you can negotiate off of the list price. Plus, you can always withdraw your back up offer anytime prior to becoming the primary buyer.
Either way, you can still be in a strong a strong position and may end up getting the home that you thought you missed out on.