What is a “backup” offer?

StaircaseSometimes a Silicon Valley home buyer finds the right home, but it’s already under contract with another would-be home owner. If the sale is either new or not yet past its contingency period, it may be possible to write an offer and have it accepted by seller in backup position.  In that case, if the first sale falls through, the backup goes into first position.

In other words, an accepted backup contract is a type of contingent sale: it is a seller contingency, meaning that contingent upon the current escrow terminating.  The first sale may (probably will) go through, but in case it doesn’t, the seller knows that the transition will be easier because there’s already an acceptable purchase agreement in the wings. Often it’s better.

Why write a backup offer?

Although they seldom go through, a backup offer enables both the interested buyer and the seller to be ready should the transaction that’s currently in escrow not go to closing.  For the buyer, it means not having to wait, or potentially deal with multiple offers should the property become available again.  For the seller, it means knowing the price and terms the property would sell for if the first buyer walked away.

Many times today, the very best homes – in good shape, nicely staged and aggressively priced – are selling with multiple bids.  In those cases, sometimes there are several with the same price and terms, or at least very close.  Rather than say no to all, one may be accepted and another requested to be in backup.

In many cases, especially if the backup comes a week or so too late, the backup offer is at a higher price and better terms than the one in place.  The hope and strategy, of course, is that the seller will prefer the backup to the one in place.  The result?  The buyers in contract usually do not ask for much, if anything, in the way of repairs or concessions. (more…)