What Does Accepting Backup Offers Mean In Real Estate?

Buying a house can be one of the most fulfilling endeavors you ever get to take on. Envisioning your family in the perfect new space, planning for the future and enjoying all the anticipation and excitement can be a truly rewarding experience. However, sometimes several home buyers are also competing with you for the same house.

When multiple people want the same house on the market, the bidding war begins. Unfortunately, sometimes your offer isn't the one accepted, which can lead to a crushing feeling. Fear not, because this is where the backup offer in real estate comes swooping in to provide a glimmer of hope.

What Is A Backup Offer On A House?

A backup offer in real estate allows for a seller to have a second buyer lined up through a binding contract. Accepting a backup offer means the seller will prioritize that offer if the original offer ends up falling through or failing to close. This gives the second-place finisher from the original round of offers a shot at actually getting the home.

If you decide to go this route, keep in mind that you may need to make an earnest money deposit along with your backup offer. This shows the seller you are serious about moving forward with your offer if the first one falls through. You can withdraw the backup offer at any time, like if you found another house you want to make an offer on, but if the seller decides to accept before you withdraw, the offer is binding.

Why Would You Make A Backup Offer?

If you really want a house, you put your best foot forward when you submit an offer. That means offering the highest sales price you are comfortable with, a large earnest money deposit and a large down payment on the loan (or cash).

Even after you make all this happen, sometimes there’s a better offer out there that gets accepted. Now is the time to talk to your agent about a backup offer. The good news is, most people don’t make them, so even if you didn’t finish in second place in the bidding war, you can revise your offer to make sure it’s enticing enough for the seller to consider it as the backup.

Sellers like backup offers. It allows for them to have leverage during the negotiations with their current offer. For example, if the buyers are asking for too much during the inspection period, the seller can walk away knowing they have another offer, sometimes an even better one, waiting in the wings. Knowing this, you can make your backup offer as appealing as possible, increasing the likelihood of getting the home.

Pros And Cons Of Backup Offers

Before making a backup offer, and before the seller accepts, it’s important to know the advantages and drawbacks that come along with this process.

Advantages Of Backup Offers

For the home buyer, the advantages of a backup offer are fairly straightforward:

• It’s an opportunity to revise your original offer and make it more enticing.
• It makes you next-in-line to purchase the house.
• It shows your desire to buy the house, which can be an important factor for home sellers.
• It’s not always done by other potential buyers, so you can become the next-in-line without having the second-best original offer.

For the home seller, there are also significant advantages to accepting a backup offer:

• It gives you leverage when negotiating with the original winner of the bidding war.
• It provides you with peace of mind, knowing you have a backup buyer waiting if the first one falls through.
• It can be a useful, time-saving device in a competitive real estate market.

Disadvantages Of Backup Offers

Despite the benefits of submitting a backup offer, you can also face some drawbacks as a potential home buyer if your backup offer is accepted.

• You may motivate the winner of the original bidding war to speedily purchase the home or ignore some things that might otherwise have allowed them to back out of the purchase.
• You are legally obligated to move forward with the home purchase if that initial offer falls through (even if you have found another home for sale that you like better).
• You may be in a kind of limbo waiting for the original offer to purchase the home or back out, all without being able to confidently submit an offer on another home.
• You might have second thoughts about the home if the original buyer found something that made them want to back out of the purchase.

Sellers can also experience some disadvantages when accepting a backup offer.

• Accepting a backup offer locks the seller into a contract, meaning that they are obligated to offer their house to the backup offer even if a better offer materializes.
• Since a backup offer is a legally binding arrangement, it opens the seller up to the possibility of legal action should the agreement be broken.

How Do I Make A Backup Offer?

Figuring out how much your offer should be, whether it’s a first offer or a backup, is a complex process. When submitting a backup offer, lean on the expertise of your real estate agent for advice and consider factors like the mortgage preapproval, contingencies and, of course, sale price.

Sale price is the biggest factor, so make that as high as you can for a backup offer. Remember, it is all about making your offer so appealing that the seller will be looking for any excuse to stop working with the first offer and start working with you.

If you are not buying a home with cash, make sure your preapproval from your lender is submitted with the backup offer. This shows the seller that you have your finances in order to buy the home if they decide to start working with you on completing the sale.

Contingencies like inspection and appraisal are the seller’s greatest source of anxiety during the home sale process. They present roadblocks where the buyer can walk away or ask for more money or repairs from the seller.

Keep this in mind when submitting your backup offer and make things like home inspection contingencies more attractive to the seller. Don’t waive inspection completely, but consider adding language to the contract that indicates you won’t ask for small items during this period of negotiations.

Backup Offer FAQs

Backup offers are sometimes complex cases, so it’s important to communicate with an experienced real estate agent to walk you through the process. Below are some of the questions home buyers and sellers frequently ask about this kind of arrangement.

What’s the difference between contingent, pending and accepting backup offers?

When a sale is listed as “contingent,” this means that while the seller has accepted an initial offer, there are unmet circumstances that need to occur in order for the sale to go through. This could be an inspection, for example. If an offer is listed as pending, that means all conditions have been met and the sale is just awaiting an official closing. If a backup offer is accepted, it ensures a contract with the seller if the first offer falls through.

Can you cancel a backup offer?

A backup offer can be canceled by the buyer, but the process can sometimes be difficult depending on the legal wording of the contract. However, once a seller accepts a backup offer, it can be extremely difficult to cancel it.

Is the option fee the same as earnest money for backup offers?

An option fee is a typically small amount of money that is paid by the buyer to the seller, giving them the right to cancel their offer. It usually is no more than $500. On the other hand, earnest money is an amount that is held in escrow by the buyer that will be put toward the home purchase once the offer goes through. This is usually a much higher amount than the option fee.

The Bottom Line: Know The Risks And Rewards Before Submitting Or Accepting Backup Offers

The backup offer in real estate represents a “Hail Mary” of sorts. It’s your last chance to get the house you want after your initial offer wasn’t accepted. It gives you hope, but be sure to temper that with realistic expectations and consider the possible downsides before you submit a backup offer.

If it doesn't work out, remember that there are plenty of other houses out there that might be just right for you and your family. Ready to start your home buying journey? Apply for a mortgage to give yourself the best shot at having your offer accepted.