How to Make a Backup Offer on a Sale-Pending Home

You’ve finally found the house of your dreams, and it is for sale. But, in a cruel turn of events, there’s already an offer. You may have to move on and accept the loss, but all is not lost.

You may think that a house marked “sale pending” is out of your reach. This label indicates that the seller and buyer have agreed to a purchase contract. However, things can happen, and sales may fall through. There’s nothing wrong with making a backup offer.

There are many reasons why home purchase transactions fail, from financing problems to contingencies that were not met. You can take advantage of the opportunity to pick up the pieces after a deal falls through and move into that home you’ve been eyeing.

This is where a backup offer can come into play.

What is a backup offer?

A backup offer in home buying is an acknowledgement of a previous offer. It ensures that a contract will be made with the seller should the first offer fall through. If accepted by the seller it will place you in the next position to buy the house if the first buyer decides not to proceed. The seller promises that the buyer who submitted the backup offer will be next in line if the first buyer backs out. In exchange, the buyer deposits earnest money into an escrow.

Under contract, “accepting offers” or “pending”, the seller continues to show the house in case contingencies in the original contract are not met. These are not backup offers. These may turn into contracts as the parties wait for the first party to complete the deal.

You will be released from the contract if the original offer goes through. Any earnest money that you have put in escrow, as well as any other funds you paid to a third party, will be returned.

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Why would an upcoming home sale fail?

Sales can fall through even after a buyer or seller has spent countless hours creating the contract.

Real Estate contracts often contain contingencies which can be fatal to a deal if not met. Contingencies related to:

  • Inspections: A foundation that is sagging, a roof with a leak, or any other major repair items can kill a deal.
  • Appraisal: When a home’s appraised value is less than the purchase price, financing may not be possible if the buyer cannot make up the difference.
  • Approval of the buyer’s loan: If the potential buyer has only been pre-qualified and not pre-approved, financing may not be available.

Another common reason for this is buyer’s regret. Perhaps the expected promotion did not materialize or the buyer decided that she didn’t really like the kitchen with an open plan. There are many reasons why buyers change their mind.

Why you should make a back-up offer

Some buyers will be better off waiting than others. A backup offer can be a good option if you are in one of the following situations:

  • If you’re not in a hurry, such as if you want to settle before the beginning of the school year, this is a good time. If someone wants to buy a home more quickly, it may not be possible to wait for a month to see if an initial contract fails.
  • There’s no other house in your budget range. It’s sometimes better to wait for the right house than rush into something that’s not quite right.
  • The listing agent can give you information about the home that makes you think that other buyers may get cold feet, or that there might be contingencies.
  • A short sale transaction is more likely to fail than a normal transaction. The bank or the person who holds the mortgage will often find that the price is too low, and demand that the seller re-list the property to get a fair value.

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How to make an attractive backup offer

Here are some tips to help you win the game if you decide with your agent to make a backup offer:

  • Money is a powerful tool. Offer a clear offer with proof of funds and mortgage pre approval. Offer a higher price if you can.
  • Be flexible. You may be willing to allow them to stay in their home longer to enjoy the holiday season or to forego minor repairs. Some sellers may be interested in receiving benefits beyond cold, hard money.
  • Write a letter. You never know how a personal touch will resonate with the seller. Tell them that you are looking forward to entertaining guests in their beautiful dining room or raising your family in their home.
  • Keep yourself visible. Keep your agent informed. Keep in touch with your agent to make sure you’re on their radar if anything changes.

Can buyers or sellers withdraw from a backup offer?

Only home buyers who are serious about the purchase of a home should submit a backup offer. In the event that the initial offer falls through, the backup offer takes the lead and the closing process will begin.

The language of the backup agreement will determine whether a buyer or a seller can withdraw without penalty from the backup offer. If the buyer intends to continue looking for a home while the accepted offer remains active, they should talk to their agent about including language in the backup purchase agreement that will allow them to withdraw while the original offer is still valid.

What are the pros and cons of a backup offer?

A backup offer is a great way for savvy buyers to get the home they want, even if it has been snapped up by someone else. Both buyers and sellers need to carefully weigh the pros and cons before making an offer for a house that is already under contract. This tactic may or may not make sense to you depending on your situation and how flexible you are.