A backup offer on a home can be made even after a home is off the market or pending. If a home has come “under contract” the seller is still able to entertain a backup offer should the initial buyer fall through.
Backup offers are a great idea for buyers that love a home and are afraid that if the initial offer falls through they might lose the home. Backup offers make a great option for home buyers looking to purchase one particular home and would like "first dibs" as the second option should the first option fall through. Homebuyer competition has been steep lately and in several low inventory real estate markets, multiple offer situations are not uncommon. Sellers have even seen it bidding wars in certain markets across the country, although, in our neck of the woods, multiple offers and escalation clauses might not be as common as in high traffic markets.
A backup offer is very popular with buyer #2 submitting an offer or contract to the seller as a backup. The seller can even sign the backup contract which means that if buyer #1 should cancel the contract or default on the contract for any reason then buyer #2 is automatically under contract to buy the home without any additional contracts.
The downside to backup offers could involve the chances that buyer #1 will have more motivation to close on the home. This is also creating more of an incentive for buyer #1 to expedite the sale and close faster. Buyer #1 should know of the backup offer and if the seller tries to hide it could be deceptive. All buyers need to know and be well aware of any additional offers or even a second backup offer, which certainly has happened.
The ugly part of this scenario comes when buyer #1 takes their time on closing on the property and buyer #2 wants to find a new property. They will need to withdraw their offer which could cause problems for the buyer and the seller. This is where a real estate attorney and an experienced real estate agent or broker can assist in the details. Having someone that understands the process can help buyer #2 get out of the deal and into a home where they could potentially be buyer #1. You certainly wouldn't want to lose any earnest money deposit being buyer #2 but have the ability to put that money down on a home that may actually close.
Buyers need to understand that submitting a backup offer is never a waste of time. If you found the perfect home you may want to consider putting in a backup offer, especially if the home is in the right neighborhood, the right price, and exactly what you're looking for. Buyers also need to realize that these offers are legally binding contracts should buyer #1 default. Also, if buyer #1 default you are then in a legal contract without competition or renegotiation. However, buyers should keep searching even if the backup offer is accepted as the second offer. In many cases, buyer #1’s offer is likely to go through so you don't want to have to start the home search process all over again. Be ready with a second option or even a third should the initial buyer follow-through. If you're interested in putting in a back-up offer on a home you know is already under contract give me a call. Let's see if this Portland real estate is worth the back-up offer and how to go about it.