Simple questions are often the most difficult to ask, especially when selling a home. Enter your friendly real estate agent (moi) who is here to answer any question you might have. One of the most common? “When can I consider my home sold?”
Depending on where you are located, you may be subject various state laws; however, the contract is binding once both parties sign the offer. Cue the closing process and the consideration of other offers. The one exception — the backup offer(s). Yes, back-up offers are a thing and both sellers and buyers need to know the nitty-gritty.
Let’s start from the beginning (always good, I find)!
In simple terms, a back-up offer is what it sounds like. The seller accepts one or more offers in case the first one (or more) falls through. There can be several reasons why the home purchase might not close—the buyer may fail to secure the loan, the home inspection may find issues the two parties can’t resolve, it could even be that the Homeowner’s Association has rules that the buyer is unwilling to accept (know what’s in your CC&Rs!).
Before the sale of the home closes, both parties need to be able to pursue other options. Flexibility isn’t something restricted to yoga! Should the sale be delayed, the buyer needs to be able to explore other options (especially for those relocating or who have a current home pending sale). The seller also needs to be upfront and let the buyer know that they may entertain other offers if things go pear-shaped.
Now, on to that nitty-gritty. Here’s what you need to know:
1. A Back-up Offer Is Legally Binding – The back-up offer is just as legit as the first one. It is important to ensure the terms are acceptable, including any buyer contingencies in the event they find another home.
2. Multiple Back-up Offers – In a strong seller’s market (like the one we are in), it is not unusual to accept multiple back-up offers. Sellers should always clarify the position of each offer and whether you will continue to accept additional backup offers.
3. Leverage – Who doesn’t love a little leverage? Having back-up offers can discourage unreasonable requests and provide security for the seller.
4. Earnest Money – Back-up offers do require the buyer to submit earnest money, just like the primary offer, which stays in escrow. The amount is often smaller than for a primary deposit, which a condition to increase if the offer moves up in the queue.
Back-up offers should be an important consideration in any home sale. Not only do they protect the seller if an escrow fails to close, but the buyer can also have another opportunity to close on a home they love.