If you have accepted an offer for your home, then congratulations. However, is it worth having a backup offer under contract if something happens with the first buyer? How likely is it that the first buyer will back out of the contract? Let's take a look to see if this is in your best interest.
It is common for backup offers to get accepted due to several ways a home deal can fall through. A backup offer is a safety net for buyers and sellers. If the primary deal fails to close due to reasons beyond their control, they each have another shot at consummating a sale.
If you doubt whether or not you should have a backup offer, you are in the right place. This article will explain the numerous ways a house deal can fall apart and why having a backup offer is always a good idea. In addition, we will answer other frequently asked questions about selling a home, so read on!
Should you have a backup offer when selling your home?
There are many moving parts when selling a home, and it can be exciting to finally have an offer on the table. However, even if you're happy with an offer, it's still a good idea to have a backup offer in place.
With so many moving parts, it's not uncommon for things to fall through - even after the contract is signed. This is where a backup offer comes in handy. If your primary buyer backs out, you can move on to the next one without starting from scratch.
Depending on the state you live in, a backup offer, if accepted, can be legally binding. If the primary buyer backs out, you are obligated to sell the house to the backup buyer.
The buyer will need to move forward with due diligence from the other side of the deal as if they were the primary buyer. This can include earnest money, inspections, appraisals, and securing financing.
So, should you accept a backup offer if presented to you? As a buyer, should you present a backup offer if the home you're interested in is already under contract?
Let's look at situations where a backup offer might make sense.
The buyer has yet to sell their home
If the buyers are contingent on selling their own home, there is a higher chance they will back out of the deal. This is especially true if their home has been on the market for a while with no bites.
In this case, it is a good idea to put a time frame on the offer. For example, the buyers have 30 days to sell their home. If they cannot do so, the backup offer will be accepted.
The buyer is not pre-approved for a mortgage
Just because a buyer says they are pre-approved for a mortgage doesn't always mean they actually are. In some cases, the buyer may not have been completely honest about their financial situation.
If you're worried the buyer might not be able to obtain financing, you can put a contingency in the contract that states they must be pre-approved by a certain date. If they are not, the backup offer will be accepted.
To avoid this situation, ask for proof of pre-approval from the buyer's lender before accepting their offer.
The buyer is asking for too many repairs
If the inspection report comes back and the buyer is asking for too many repairs, they might back out of the deal. In this case, it's a good idea to have a backup offer in place so you can move on to the next buyer.
Some buyers can be very demanding, especially if they think you're desperate to sell. If the buyer is being unreasonable with their requests, it's good to have a backup offer in place. This way, you can move on to someone more reasonable.
The appraisal comes in low
If the appraisal comes in low, the buyer might back out of the deal. In this case, it's a good idea to have a backup offer in place so you can move on to the next buyer.
However, if your second offer is also higher than the appraisal, you could be looking at the same situation happening all over again. In this case, you might want to consider negotiating with the buyer or accepting their offer.
The buyer is taking too long
A lot can happen in underwriting, and the deal might fall through at the last minute. In this case, it's a good idea to have a backup offer in place so you can move on to the next buyer.
Some buyers might be approved for their mortgage, but something comes up that delays the closing date. If the buyer is taking too long, you can accept the backup offer if the deal falls through.
Housing Market
If you are in a region where it is a "seller's market," then the seller will have more negotiating power. This is because there are more buyers than there are houses to buy.
In this case, the seller may not need a backup offer because they can be more choosy with the offers. Plus, if the first does back out, you are confident that another will quickly take their place.
In a "seller's market," the buyer should be willing to present a backup offer to increase their chances of having their offer accepted.
On the other hand, if you are in a "buyers market," then having a backup offer is always a good idea. In this case, there are more houses on the market than there are buyers looking to buy. This gives the buyers more negotiating power and puts you at risk of your home sitting on the market for a longer period of time.
What is an escape clause?
If you have decided to entertain backup offers, you will want to include an escape clause in your contract. This clause allows you to view and accept other offers even after your contract has been accepted.
This is a useful clause because it gives you the flexibility to accept a backup offer if your first buyer backs out. In addition, this clause will give buyers an extra push to abide by the contingencies in your contract.
For example, if your buyer hasn't secured financing and you receive a backup offer, you can notify the buyer and give them a time frame to obtain financing. If they cannot do so, the contract is void, and you can accept the backup offer.
Including an escape, the clause is an excellent way to protect yourself and give yourself some peace of mind when selling your home.
The escape clause protects the sellers from missing out on a backup offer while waiting for the first buyer to meet their contingencies.
Should a buyer make a backup offer on a home?
Some reasons warrant making a backup offer on a home. Let's take a look at a few:
You need a home fast
If you're in a time crunch and need to find a home quickly, making a backup offer is a good way to increase your chances of having an offer accepted. You can put offers in on multiple homes, and if one falls through, you have a backup offer in place.
It's exactly what you want
If you find the perfect home that meets all of your criteria, you should put in a backup offer. This is because you might not find another home that meets all of your needs and wants. You never know if the original buyer's offer will fall through.
Homes are selling fast
If you have missed out on a few homes because they went under contract quickly, making backup offers is a good strategy. This is especially true in seller's markets where there are more buyers than homes to buy.
Making a backup offer will increase your chances of having an offer accepted. In some cases, you might even be able to get the home for a lower price if the original buyer backs out and you are the only backup offer.
Final Thoughts
Overall, there is always a chance a house deal can fall through. However, when you are serious about buying or selling a home, a backup offer can be a safety net.
If you are the buyer, a backup offer can increase your chances of having an offer accepted. If you are the seller, a backup offer can give you some peace of mind and protection if the original buyer backs out.
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