Back Up Offers: Why I Think They’re Pointless (as a Buyer’s Agent)
Back up offers are, by definition, the next in line to purchase a property should the current contract fall through. They’re becoming more popular with listing agents in our market, but I have some strong opinions on why (as a buyer’s agent) they’re almost pointless and waste of your time and effort. I’m sure you’re surprised to hear I have an opinion on this. Now, I want to make it clear that my opinions on this are strictly for regular sales, not a foreclosure or short sale, which can be totally different animals.
When is a back up offer written?
When a seller has accepted a contract on their property and they now have a ratified contract, sometimes agents will encourage buyers who “lost” out to write and submit a back up offer.
What are the terms of a back up offer?
You are the lady in waiting. Should the winning offer fall through, you’re there to step in and continue. Most of the time, agents will tell you the price has to be at least what the other one was. Now other terms are subject to your financing, so you’ll still need whatever length of time your lender requires to complete your loan, so it might be another 30 days before you can close (some lenders can get it done faster, truly depends on your type of financing and your lender).
When would a back up offer be accepted?
You have no standing or say in anything until the current offer falls apart. When does that happen? Usually the home inspection, appraisal, or the buyers get cold feet and void for whatever reason. Now, in a situation where the buyer got cold feet and voided for no particular reason – that might be a great situation for you. However, if the buyer voids the current contract because something was wrong on the home inspection or the property didn’t appraise for their sale price, now you’ve agreed to pay at least that price for something that’s a) wrong with the property with no guarantee the seller will repair it or credit you for repairs, or b) has been deemed above market value by an appraiser.
Why would you want to pay more for something than you have to?
My reasoning is this: if you missed out, it wasn’t meant to be. Keep looking. Tell the agent you’re interested if the current contract falls through, but don’t waste your time and miss other opportunities waiting for something that might never happen. If the opportunity comes up to pursue the property again, ask what happened. If something major came up on the inspection, now the seller has to disclose it and you’re in a better bargaining position.
Now, as a listing agent, obviously it’s in the best interest of a seller to entertain backup offers. If the current contract asks for a large credit for repairs or something of the sort, you know you have another buyer waiting in the wings who may benefit you more financially. Sellers always win with backup offers. Buyers (almost) never do.