Real Estate Tips: The Importance of the Backup Offer
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Yes, Denver’s real estate market is still sizzling, but home deals can fall through for a myriad of reasons from financing trouble to inspection issues. This makes putting in or accepting backup offers all the more important when it comes to protecting yourself in these economically uncertain times. In this post, we give the scoop on the importance of a backup offer from the buyer and the seller’s perspective. Please note that every deal is different, so before making any decisions consult with you realtor to make sure you choose the right path for you financially.
What is a Backup Offer?
A backup offer is just that. As a seller it allows for a second (or third or fourth) offer that you are willing to accept if the first offer fails to make it to the close of escrow. It is important to know that backup offers are legally binding contracts.
So as a seller, before accepting a backup offer you will want to make sure you will be okay with the numbers offered. If the primary bid falls through before the closing for any reason, the backup offer will go into effect. As a buyer, you can usually get out of a backup offer if the primary offer is still active, but it is recommended you only put in backup offers for homes you really want to close on.
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What Sellers Need To Know
If is fine to accept more than one backup offer, especially in these economically uncertain times. At Frontgate, we’ve seen a few sales not make it to closing recently for a number of different reasons and having backup offers lined up protected our sellers.
There is no rule that says how many backup offers you can accept and usually it is best to accept as many as are offered at a price point you can live with. One reason to accept more than one backup offer is that in the time it takes for the primary buyer’s sale not go through the first backup buyer may have found another property. If you have more than two backups it will allow for more peace of mind, especially if you need to make the sale in a hurry.
It is important to be honest with your potential buyers and their realtor and let them know you are accepting their bid as a backup offer. You should also let them know where they stand on that list if you are accepting more than one offer.
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Why Buyers Should Put in a Backup Offer
As a buyer it can be advantageous to put in a backup offer for a number of reasons. The Denver housing market is still hot and properties move fast. But not all mortgages get approved or a primary buyer may not like the results of the home inspection that you may be okay with. As such, primary offers can fall through and putting in a backup offer can end up garnering you the property you wanted.
Backup offers are legally binding for the seller, but as a buyer you can usually withdraw from the backup offer while the primary offer is still active if you find a different home. It is really important to verify this with you realtor before proceeding with putting in a backup offer, however, as this can vary.
Backup offers are really meant for buyers who are serious about purchasing a particular house but who didn’t put in a bid fast enough. You shouldn’t put a backup offer on a property you don’t want to close on, and you should try to price it accordingly with the market. If you do put in a backup offer and the original offer goes through then the seller will release you from your contract and return any earnest money put into escrow.
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How Buyers Should Price Backup Offers
What to offer price-wise as a backup offer is something you’ll want to speak with your real estate agent about, especially when buying in Denver currently (and depending on your price range). Since our market is currently hot with bidding wars quite common, you’ll want to make a competitive offer, that may be over the listing price, to have the best chance of the seller accepting it. This is especially true if the seller is accepting multiple backup offers and ranking them.
As mentioned above, the seller should let you know where your offer ranks with them. Again, your realtor will be able to advise you on this. In some cooler neighborhoods or higher price points, you may be able to put in a backup offer that is slightly lower than the listing price as this gives sellers a safety net if the primary offer doesn’t go through. If there are multiple backup offers, however, you will usually need to go above the listing price.