What is a Backup Offer? How Does A Backup Offer Work?

Back up vs. Backup

Backup (one word)

Noun or Adjective

(noun) The checkout line was stacked 20 customers deep, so the cashier called for backup.

(adjective) It pays to have a backup plan in place.

Back up (two words)

Verb

(verb) Let’s back up for a second.  Can you back up your claims with facts? 

(verb) Smart business owners back up the company database.

Common Misspelling

Back-up, backup’s backups’

 

In real estate, after a Seller has contracted to sell a home to a Buyer, a Seller may still consider a backup offer. Since most buyers condition their offers to purchase homes subject to inspections and financing approval, it is possible that a Seller could lose the first deal they accepted if the Buyer backs out or cannot perform.

A Seller may negotiate a backup offer just as they would with a primary offer. Providing parties find an agreement, a backup offer becomes an executed contract, for which a backup buyer will place earnest money and an option fee toward. A Seller may only have 1 executed backup offer in place at a time.

In the event that the primary contract terminates, the backup offer immediately takes the primary position of engagement, and saves a Seller from having to return to market or reconvene showings. It saves a backup buyer from having to compete with less-committed buyers who weren’t willing to submit a backup offer,  and may even create the opportunity for a lucky backup buyer to benefit from receiving a copy of the prior buyer’s inspection report.

Reasons a Seller May Welcome and Accept a Backup Offer

  1. Should the primary buyer terminate, Seller can avoid going back on market / continuing to show
  2. Helps Seller put more pressure on a primary puyer to keep all original contract terms in place
  3. Allows Seller to be less negotiable with a primary puyer & potentially incite a primary buyer to terminate

Reasons a Seller May Not Consider a Backup Offer

  1. Seller has strong confidence in the primary offer and doesn’t want to waste another buyer’s time
  2. Seller would prefer to go back on market in hopes of attracting a multiple offer scenario
  3. Seller feels confused about the process and doesn’t understand the reasons to consider a backup offer

A backup offer requires a buyer to have skin in the game…

Just like a regular offer that receives Seller acceptance, a backup offer will require a Buyer to place earnest money toward the contract, and pay the Seller an option fee at the time the backup offer is executed.  A savvy Buyer’s Agent can strategically structure the terms so that a nominal amount is provisioned up front and additional funds follow the moment a backup contract becomes the primary contract.

Reasons a Buyer Should Consider Placing a Backup Offer

  1. Secures a Buyer’s place in line should the primary contract terminate
  2. Has the power to compel a Seller toward becoming uncooperative with a primary buyer, and thereby incites termination

Reasons a Buyer May Not Want to Place a Backup Offer

  1. Requires money up front, which could negatively impact buying power toward an available property
  2. Will cost the Buyer the option fee should the backup offer become primary and the Buyer has already engaged another contract on a different property.

Do backup offers work? ABSOLUTLEY!! 

When we were personally shopping for our current home, we were a bit late to the table with our offer. We were devastated, and although we continued our search, nothing seemed to compare with the ‘one we lost’.  We decided to offer a very attractive backup offer during the primary buyer’s option period, and the Seller accepted our backup!  

On the final day of their option period, the primary buyers terminated. We found out later that they had requested some hefty (and unnecessary) repairs from the Seller. Our attractive backup offer gave them the confidence they needed to so NO to overly-demanding buyers.  When our contract became primary, we did the happy dance in our jammies and never looked back!

If you want accolade-winning buyer representation services and a Realtor® who thinks outside of the box to help make your dreams come true, contact Providence Group Realty today at  469.645.6363 for assistance with your Texas home search or Texas relocation effort.

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