Backup Offer
A backup offer is a legally binding contract submitted by a prospective buyer for a property that is already under an accepted purchase agreement with a primary buyer. This secondary offer is held in reserve and is structured to automatically move into the primary position if the initial deal is terminated for any reason.
Purpose and Function
The fundamental purpose of a backup offer is to secure a buyer’s place in line for a desirable property. In a competitive market, it is not uncommon for a primary contract to fall through due to failed contingencies, such as issues with financing, inspections, or the appraisal. A backup offer provides the seller with an immediate and seamless transition to a new buyer, preventing the need to re-list the property and start the marketing process over. For the buyer submitting it, a backup offer is a strategic move to secure a home they want without waiting for it to come back on the market, where they would likely face renewed competition.
How It Works:
- Submission: A prospective buyer submits a complete and formal purchase offer on the property, acknowledging its status as a backup.
- Acceptance: The seller formally accepts and signs the backup offer, creating a second, contingent contract. This agreement only becomes active if the primary contract is officially terminated.
- Activation: Should the first deal collapse, the backup offer is automatically elevated to the primary contract, and the timelines for inspections, appraisals, and other contingencies typically begin from that date of activation. The backup buyer is then obligated to proceed with the purchase according to the terms of their agreement.
Benefits and Risks for Buyers
Submitting a backup offer involves a unique set of strategic considerations, balancing potential opportunity with inherent limitations.
Benefits:
- Secures a Position: It effectively locks in the purchase price and terms, eliminating the risk of a bidding war if the property returns to the open market.
- Demonstrates Serious Intent: A strong backup offer can appeal to a seller, sometimes even influencing their negotiations with the primary buyer, as they know they have a viable alternative.
- Potential for a Good Deal: The buyer avoids the frenzy and competition that often accompanies a newly available property or “back on market.”
Risks:
- Ties Up Earnest Money: An earnest money deposit is typically required, and these funds will be held in escrow, making them unavailable for offers on other properties.
- The Waiting Game: The buyer is in a holding pattern, unable to actively pursue other homes while their offer is pending. The primary deal may well proceed to closing, leaving the backup buyer with nothing.
Loss of Other Opportunities: While waiting, the backup buyer may miss out on other suitable properties that become available. The decision to submit a backup offer requires a firm commitment to that specific home above all others.
