What's A Back-Up Offer?

Back-Up offers are negotiated just like any typical offer. The offer though only becomes a "Back-Up Offer" when the seller already has one or more buyers already under contract, and then the Seller accepts a contract with additional subsequent buyers.

When the Seller accepts a second Buyer's contract, then this second Buyer would be next in line, behind the primary buyer. So, if for any reason the Primary Buyer is unable or unwilling to close on the purchase of the property, then the Second Buyer would automatically become the Primary Buyer... The negotiating has already been done!

While it's possible to have multiple Back-Up offers, before a Third Buyer could become the Primary Buyer, the first two sets of Buyers would have to be unwilling or unable to purchase the property. For this reason, the value of being a "Back-Up Buyer," diminishes greatly if you are not the buyer directly behind the Primary Buyer!

The reasons that a Primary Purchase Agreement could die, which would allow the Back-Up Buyer to become the Primary Buyer, could include anything from the Primary Buyer rejecting any applicable HOA documentation, to the Primary Buyer failing to obtain their mortgage, or the Primary Buyer and Sellers failing to agree on any Inspection Items, or any other of the several Buyer contingencies within the Purchase Agreement. It could even be that the Primary Buyers just changed their mind, so the primary Buyer no longer wants to proceed with the purchase of the property!

Why Would A Buyer Want To Submit A Back-Up Offer?

If what you are looking for, in a property to purchase seems to be atypical or rare either because of your criteria or because of limited inventory/supply, or for both reasons, then if you find a place that interests you and the other place checks off enough boxes that you would want to submit an offer, however another buyer has already had their offer accepted by the seller, then you may want to submit a Back-Up Offer where you will be the second-in-line to buy the property if the Primary/First Buyer is unwilling, or unable to close on the purchase.

The beauty of a Back-Up Offer is that as a Back-Up Buyer, you won't spend any dollars on the property for inspections or appraisals etc., until you are the Primary Buyer. You can also continue to look for other properties that will fit your needs. And, if you find something you like as well, or even better, and you are not yet the Primary Buyer, then you can terminate your Back-Up offer, receive your earnest money back, and submit an offer on the new property without missing a beat!

The Downsides... To Submitting A Back-Up Offer?

There is no risk to you, if the best-case scenario, is that you become the Primary Buyer and you are able to purchase the property!

The only possible downside is that submitting a Back-Up offer can create an emotional attachment to a property, even if you know the outcome is beyond your control since it's 100% up to the Primary Buyers, and their lenders, if the Primary Buyer will be willing and able to close on the purchase of the property!

As long as you continue searching for a place, as if you never found the property that you are submitting a Back-Up Offer on, then there are no reasons to avoid submitting a Back-Up Offer!

The Differences... Between Regular Offers & Back-Up Offers

Along with all of the usual and typical terms, timelines and contingencies, within any offer, the Back-Up Offer Addendum adds/changes a few items.

The first change is the Back-Up Offer will typically automatically end after either 30, 45 or 60 days from acceptance, or when the Primary Buyer Closes on the property, whichever happens first. This timeline though can be extended in writing by agreement of all parties. Additionally, ONLY the Back-Up Buyer may withdraw the Back-Up Offer at any time in writing prior to receipt of a signed Mutual Release on the primary Purchase Agreement. This Means the Back-Up Buyer can change their mind because they found another property, or the Back-Up Buyers can change their mind for any reason as long as they are still the Back-Up Buyer, versus having already become the Primary Buyer after the buyers, or their agent, have received a copy of the executed Mutual Release between the Seller and the Primary Buyer!

The second change is that timelines, like the number of days for the inspections, or the days to gain the Buyer's mortgage clear to close, and to close on the purchase etc., in a typical purchase agreement would start counting with day 1, being the first day after acceptance of the Purchase Agreement. With a Back-Up Offer, except for the delivery of the Earnest Money, the time periods instead of starting on the "date of acceptance," the dates will start on the date of "receipt of Mutual Release" from the prior Purchase Agreement. So, if Earnest money, per the Purchase Agreement is to happen within 24 hours that still happens. However, if closing is supposed to happen within 30 days in a Back-Up offer that would be within 30 days from the date of the "receipt of Mutual Release" from the prior Purchase Agreement.

The last major change, along with any items that may be submitted within the Further Conditions of the Back-Up Offer Addendum, is that if the Back-Up Offer is terminated in writing, or the Buyer withdraws this Back-Up Offer, then all of the earnest money deposited with the Back-Up Offer shall be returned to the Buyer promptly!

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