According to the latest National Association of REALTORS® Profile of Home Buyers and Sellers, the typical home sold last year was on the market for just three weeks. Home sales are moving quickly today because of limited inventory, causing lucky home sellers to see an increase in multiple bids or bidding wars. Buyer competition hit a peak earlier this year when Redfin reported 74.1% of offers faced bidding wars.
The best offer is accepted, and the deal moves forward. But, sometimes a real estate transaction will fall through. In that case, the home has to go back on the market, pushing your timeline out even further.
The only way around re-listing is to accept backup offers, so during the planning phase of your home sale, talk to your listing agent about the pros and cons of backup offers.
What does it mean when it says accepting backup offers?
Approximately 25% of all escrows fall through because of inspection contingencies, lending hiccups, appraisal surprises, and more. If your buyer ends up with significant issues, your entire sale doesn’t have to end.
That’s why accepting backup offers can be a great way to tip the odds in your favor and ensure you close as quickly as possible. When you list for sale, it’s common for the agent to not “accepting backup offers” in your property’s description and notes so that other agents and buyers know that you are open to them.
What is a backup offer?
A backup offer is an offer for your property that you are ready to accept if the primary offer doesn’t make it to the close of escrow. Real estate transactions can fall through for a variety of reasons, so it’s better to be safe. Backup offers, however, can be tricky. It’s important to know and consider the following 4 things about backups before you accept your first one.
1. A backup offer is as legally binding as a primary purchase agreement.
Make sure before accepting a backup offer that it is one you will be comfortable with as is. The difference between a primary offer and a backup offer is that the backup offer’s contractual viability is contingent on the primary offer not going to escrow. Once the primary offer falls through, the backup offer becomes a legally binding contract for the transfer of your home’s ownership.
2. Be straightforward with anyone in a backup position.
Be polite. Be considerate. Maintaining positive relationships is very important to having a pleasant real estate experience, and ensuring future experiences are the same. So, if you are accepting a backup offer, make sure that both the backup home buyer and the buyer’s agent know that you have a current contract, but what they are submitting is a backup in case the primary falls through.
If the backup buyer thinks he is the primary buyer, you will find yourself in an uncomfortable and possibly tough situation.
3. Accept more than one backup offer.
Don’t be shy about accepting as many additional offers as buyers are interested in submitting. Anything can happen: your primary deal falls through and your backup buyer finds another house. By accepting as many backups as buyers are willing to submit, you can pick the best from there.
Rank them according to your preference and let each potential buyer know where they stand on your list. Make sure you are always honest and upfront with every buyer you deal with. It will make the process of selling your house much more relaxing.
4. They can be used as a tactic to encourage hesitant home buyers.
Accepting a backup offer, even when you don’t see your current deal falling through, often encourages a hesitant buyer to stop stalling and commit to the purchase. If there are results of an inspection they are mulling over, accepting a backup offer will give your home the allure of being wanted.
As with any real estate transaction, accepting a backup offer and protecting yourself at the same time is a delicate interaction. Done wrong, and they become a headache or even a legal tangle.
Accepted backup offer – What’s next?
Once you’ve accepted a backup offer, your first offer is still valid and under contract. Remember, you can accept several backup offers while you are under contract just in case your primary buyer falls through.
Especially in a seller’s market with limited inventory, it is common to accept backup offers. You won’t have to turn to your backup offers unless the current buyer falls through because the buyers had an issue with their lender, or raises other objections.
Will backup offers have to submit earnest money?
Yes, backup offers are required to make an earnest money deposit. Just like your initial offer, once it’s been signed by you the seller, and your potential buyer, the backup offer is legally binding. However, assuming your initial offer goes there are no issues securing the mortgage loan or other objections, any backup offers will receive their earnest money back.
Contact a First Team agent in your area to help you deal with all the important details of selling your home, such as explaining more about ways that you can leverage backup offers. Our trained and experienced agents can help home sellers solve problems before they even begin.