Picture this – you and your real estate agent are shopping for your perfect home. Aha! Finally, you've found one that is absolutely darling and meets all of your checkboxes. But, wait – there's one problem. This home already has an offer on it.
Don't lose all of your hope, though! Contracts on homes can fall through for many reasons, from financing problems to home contingencies not being met. While it is not guaranteed you will end up under contract, it doesn't hurt to exhaust all of your possible options if you are certain that you really want this home. This is when a back-up offer comes in handy.
What is a back-up offer?
Basically, when a back-up offer is made and accepted, the seller and buyer automatically enter contractual status if the primary offer happens to fall through or if the first buyer backs out. A back-up offer works the same way any other offer would, including a submission of an earnest money deposit.
Pro tip! If accepted, a back-up offer is just as legally binding as every other real estate contract. Do not submit an offer just to have a foot in the door with the seller. Only submit an offer if you are certain that you will still want to close on the home and ensure that you are offering conditions that you will be happy with in the long run. Your real estate professional can help advise and guide you.
If the original offer closes, you will be released from your contract and any earnest money will be returned to you. If the original offer does not move on to close, your offer is next in line to purchase the home and your home buying process will begin.
Should you get tired of waiting and desire to move on with your home search, it is important that your real estate agent includes a clause in your offer that will allow you to remove yourself from the back-up offer while the original offer is still active.
Making a back-up offer.
The process is about the same as submitting an original offer, and the seller will consider your offer as such. Again, if you want your offer to have the potential of acceptance, you and your real estate agent should strategize the best approach that you are satisfied with.
How much should I offer?
Because you want your offer to be appealing to the seller, how much you offer can be determined by the climate of your area real estate market. If you are in a cooler real estate market, you may be able to have an offer accepted by offering at or below list price. However, if you are in a hot market where bidding wars and multiple-offers are common (like the Nashville real estate market), you will likely need to consider making a more competitive offer. Your REALTOR® can help you decide how much to offer for the home and help you determine if you would like to offer to pay for other commonly negotiated closing expenses.
Pros and cons of back-up offers.
- You may end up snagging the house of your dreams.
- Your dream home does not return to the market if the first contract falls through. You will not have to enter a potential bidding war with other buyers.
- Your earnest money can be tied up for an indefinite amount of time & if you decide to exit the back-up offer, it may take a while to have your money returned.
- Your home search is essentially paused, unless you want to risk entering contracts on multiple homes. Yikes.
- The first offer may have fell through for good reason. You'll want to ensure there are no issues with the house by having a proper inspection done if your back-up offer moves to home plate.
Ultimately, just like any step along the home search process, your real estate Expert can help advise you if a back-up offer is the right move. Start your home search by reaching out to one of our Music City Experts or by using our online sophisticated home search tool.