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What Is a Backup Offer in Real Estate?

Backup offers may seem like long shots, but can be a buyer’s ticket to the home of their dreams. If you’re interested in submitting a backup offer, learn more about all of the specifics, including when to make them, what to include, and the best way to get the agreement to sellers.
how to make an offer

Finding the perfect house can be a grueling process, but what happens when you finally find your dream home, only to learn it’s already under contract? While many home buyers would simply feel disappointed and move on, but there’s another real estate strategy you can take advantage of to get the house you love: a backup offer.

What is a Backup Offer?

A backup offer is exactly what it sounds like — an offer made on a home that already has an active contract, to be acted upon if the first contract falls through. It allows the interested buyer to make a financial agreement with the seller that becomes the official buying contract if something happens to impact the existing contract.

Real estate deals fall through for a variety of reasons and rather than missing out on a property, a backup offer saves your spot in line. While it might not seem worth the effort, if you really love a home, you’ll want to consider making a backup offer.

Reasons Real Estate Contracts Fall Through

You might think it’s unlikely that the first contract falls through, so a backup offer might not seem worthwhile. However, if an agent tells you that the seller is accepting backup offers, there’s a pretty good chance their contract is already on shaky ground.

Here are a few potential reasons why contracts can fall through:

  • Contract is contingent on the buyer selling their home before closing
  • Contract is contingent upon a good inspection report
  • Contract is contingent on a home appraisal equaling the listing price of the home
  • Contract is contingent on the buyer’s financing approval

So much can change during the buying process. Contracts are written to protect both parties, especially the buyer, from committing to a purchase if they don’t have the correct funding or feel the home isn’t exactly what they agreed to buy.

Other Benefits of a Backup Offer

The main perk to submitting a backup offer is securing the home you really want in case a contract becomes void. There are additional benefits to being next in line already, rather than swooping in when the home is relisted.

If a contract falls through because the buyer couldn’t obtain the right financing, but the home’s appraisal was high, the house could be relisted for a higher asking price. If you already have a backup offer with the seller, then the price you agreed to is locked in.

Backup offers also save sellers from having to remarket their home and revisit offers and complete contracts for a second time. Having everything ready to go makes the process faster and smoother for both parties.

Should a Backup Offer Be Higher Than List Price?

There’s no one answer to this question, but most backup offers should at least match list price. Depending on how many offers are on the table and where your spot in line is, you might want to offer more than list price, if you really want the home and feel it is worth the investment.

The best way to determine how much to offer is to talk to your real estate agent to find out more about the existing offers on the table. Agents can also offer advice as to how high or low to go, based on their knowledge of the sellers and the local market. Blindly making a backup offer can backfire if you don’t have a good buying strategy in place.

Odds of Securing a Home with a Backup Offer

Every buying situation is different, but there are some cases where a backup offer is definitely a great strategy to implement. If the home you’re looking at must go through short sale approval, there’s a 50% chance that the first contract will fall through. Why? Short sale approval can take longer than usual and can run into delays that cause buyers to jump ship.

If the first contract does fall through, it’s important not to overlook the reasons why. Generally, contracts become void during the home inspection process, so your agent can help you determine if the issues flagged on the inspection report make a difference to your offer price or desire to purchase the home. Don’t get sucked into committing simply because you love the house; there could be serious problems to be addressed first.

Making Backup Offers

Your agent can walk you through the process of making a backup offer and provide you with advice on the price, contingencies, and other important details. A qualified agent can also walk you through every other aspect of home buying — from financing to closing.

If you are considering making a backup offer or want to understand if it’s an option for a particular property, get in touch with a local Clever Partner agent to learn more.

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Ben Mizes
Ben Mizes

Ben Mizes is the co-founder and CEO of Clever Real Estate, the free online service that connects you with top agents to save thousands on commission. He's an active real estate investor with 22 units in St. Louis and a licensed agent in Missouri. Ben enjoys writing about real estate, investing, personal finance, and financial freedom. He's a serial entrepreneur, having run several successful startups before Clever Real Estate. Ben's writing has been featured in Yahoo Finance, Realtor News, CNBC, and BiggerPockets.

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