Backup offers - Just because a house is under contract, it does not mean it is time to move on...

One of the most underutilized buying/selling strategies is submitting (or accepting if you're a seller) legally-binding backup offers. An official backup offer is an offer that is negotiated and executed (both sides agree upon the terms and sign off) after a property is already under contract, which automatically becomes the primary offer if the first offer falls through. Summed up, it's exactly like any other offer that a potential buyer would make on a house with the exception that it's a backup offer and not the primary offer. The backup offer is a legally binding agreement; it's not just an offer that someone hangs on to and "keeps in mind" while they see if a primary offer will work out. So why would anyone want to take time to negotiate another offer after a contract is already in place?

Imagine you're a buyer who has seen several houses but the one you love the most just went under contract. It may not be time to cross that one completely off the list. As you know, there are many steps in the buying process. Deals can fall apart in the process for big things like a buyer's job loss prior to closing or small things like a buyer not submitting their earnest money on time per the contract (although a good buyer's agent should never let this happen). If the contract on the house you love falls apart prior to its scheduled closing and you and your agent have taken time to negotiate a backup offer with the seller, your offer will automatically become the primary offer and you will get the house. That means the house won't go back on the market and you won't have to try to compete against other potential buyers!

Now imagine you're a seller who just came to an agreement with a buyer and now you have a binding contract. As the seller, you're able to decide whether you want to stop any and all further showings or continue to allow showings with the hope of getting a backup offer. It's no secret that showings can be somewhat inconvenient for sellers since they typically require the seller to leave the house while it's being shown. However, if the seller is willing to continue to show the house and try to get a backup offer, there's potential for a big payoff. You may receive a backup offer that is actually better than your primary offer. If that is the case, it's good to know that you have a fantastic backup plan. If the buyer in the primary offer breaches the contract for something simple like not submitting their earnest money on time, with proper notification, you can essentially say "see ya!" to the primary contract and allow the back-up contract to become the primary contract. Even if the back-up offer that you negotiate isn't quite as good as the primary offer, it can still save you time (and time=money) by not having to put the the house back on the market and start over from square one.

So what are the negatives of backup offers? Well, there aren't really any if your a seller taking backup offers on a property you'r selling. Basically, the more backup plans, the better. However, if you're a buyer, there are two things to be mindful of:

1) Buyers should never make an offer on more than one house at the same time and this goes for backup offers too. The reason you should not do this is because you wouldn’t want to take the chance of both offers being accepted at the same time. That would put you in bad situation that could require a lawyer.

2) If another house comes on the market that you want to make an offer on after you've already negotiated a backup offer with a seller, you have to withdraw your backup offer before (or at the same time) as putting an offer on the house that just came on the market. This is simple to do with a one-page document as long as the backup offer was negotiated properly.

Summed up, if you're a buyer, your Realtor should be scouring listings which meet your criteria which are under contract but still allowing showings/offers. It's not sold until it's closed. If you're a seller, you should strongly consider having your Realtor continue to market and show your property even after it's under contract in order to plan for the worst or to give you a great alternative a lot of leverage if the primary contract holder does not end up meeting their contract performance deadlines!