A "backup offer" could get you the house you love

A backup offer is a home purchase contract that recognizes another offer has been accepted but proposes a new offer that would take priority if something goes wrong with the original offer. That means that if the first buyer doesn't follow through, you get to buy the house.

Although the average time from purchase contract to closing is 50 to 60 days, data from the National Association of REALTORS® shows that approximately 24% of closings are delayed, with about 7% of contracts never being completed.^Footnote2 Reasons include:

• The buyer can't get financing. Even if the buyer is preapproved, there are many last minute issues that could affect their ability to qualify for a mortgage, such as loss of income or recent large credit purchases.
• The appraisal came in too low. If the home is appraised for less than the sale price, the buyer would have to make up the difference in cash. If they can't, they would have to back out.
• Title issues are discovered. Delays can happen if questions come up about the property survey, if an heir is trying to claim the property, or if home improvements were made without the proper permits.
• The home inspection uncovers major problems. Most repair issues are negotiated between the buyer and seller, but if the inspection finds serious — and expensive —problems with the roof, foundation or structure, the buyer could decide to walk away.
• The buyer changes their mind. It's pretty rare, but sometimes people just decide the house isn't right for them and are willing to pay the price to cancel the deal.

Backup offers aren't a good idea for everyone. However, it could be right for you if:

• You don't have a hard deadline for when you need to move.
• There's a shortage of available homes that meet your needs.
• The listing agent told your agent about issues or contingencies that could cause the first buyer to drop out.

A backup offer should be as strong as any other purchase offer and include earnest money to show how serious you are. Work with your agent to consider the price you want to offer and what, if any, contingencies you want to include. Some flexibility on the inspection or setting a closing date could make your offer stand out.

You may also want to write a personal note explaining why this home is perfect for you — this can help create a connection with the seller that will work in your favor.

Finally, be sure your agent stays in close contact with the listing agent to keep track of the first buyer's progress.

If you plan carefully and work with your agent, the main risk is that you won't get the house, and you'll have to renew your home search. Possible problems include:

• If you lose patience, you'll lose your earnest money. If the first buyer is successful, you'll get your earnest money back. But if you get tired of waiting and pull out of the contract, you'll lose the money you put down.
• You can't (or shouldn't) make an offer on another house while you wait. Putting down more than one offer at once is a bad idea — and illegal in some places. If both offers were to be accepted, you could lose a lot of money (assuming you can't buy two houses).
• The other buyer could have good reason for withdrawing. If there are serious structural issues with the house or another major issue, you may not want it either. If the first buyer cancels their contract, be sure your agent finds out why, so you can avoid possible problems.