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What is a backup offer?
Dear Phyllis,
I have been visiting La Crescenta open houses for a few months. However, I am not yet prepared to buy a home. So, you can understand I don’t want to get too engaged with Realtors at this time. At one open house, the real estate agent told me that they had multiple offers. At another, the agent told me the seller was already in escrow but looking for backup offers. I think I understand what multiple offers are. But can you clarify what a back-up offer is and why I might want to make one?
Thank you! Jerry
Dear Jerry,
In our Foothill neighborhoods, buyers typically submit offers with proof of funds and a prequalification or preapproval letter. In addition, most real estate agents contact the buyer’s lender before accepting an offer. This step helps confirm that the buyer qualifies for financing. Next, offers often include standard contingencies. For example, a buyer may cancel escrow and receive a refund of their earnest money deposit if the home does not appraise or if the property condition is not acceptable.
A backup offer comes into play when the seller is already in escrow. At that point, the seller can accept a second offer as a backup, subject to the first buyer completing the transaction. If the first escrow cancels, the backup buyer automatically moves into the primary position.
For example, my sister lives out of state. She and her husband recently decided to move to a neighboring community. Like many buyers, she found her dream home online. It met all their needs. It sat on the water, and it fit their budget. However, when she contacted a real estate agent, she learned the home was already in escrow but still accepting backup offers.
Even so, she did not give up. Instead, she asked her agent to submit a backup offer. As it turned out, the original buyer cancelled escrow. Consequently, my sister and brother-in-law successfully closed escrow on their dream home.
What a great fairy tale ending for your sister.
You just never know if you being back up prods the initial buyer to close.