October 2023

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

With the persistent lack of available homes for sale, it's not unusual to find a home you love that's already under contract. Depending on your circumstances, putting an additional offer on that home — known as a "backup offer" — could be a smart way to get the home you want.Footnote1 Keep in mind, though, to succeed, you'll need patience, perseverance and a bit of luck.

What is a backup offer?

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.

Why do sales fall through?

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.

When should you consider a backup offer?

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.

What should you include in a backup offer?

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.

Are there risks in making a backup offer?

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.

To sum up, a backup offer could make sense — as long as you have an experienced agent to keep you on track.

A note from your lending specialist

If you're getting ready to make an offer on a home, it's time to be sure you're preapprovedFootnote3 for a mortgage. Contact me or get started anytime on my website.

1 How to Put an Offer on a House That’s Already Under Contract By Liz Alterman, May 8, 2022. Accessed July 2023.

2 How Long Does Closing Take on a House From Start to Finish? Christopher Rogacz, HomeLight, Published on February 25, 2023. Accessed July 2023.

3 Final loan approval is subject to satisfactory appraisal and title review and no change in borrower credit and financial condition. Preapproval is subject to terms and conditions and timely submission of required documentation; ask your Lending Specialist for details. Preapproval does not commit to the continued availability of the loan program. The interest rate shown in a preapproval is based on our current pricing and is not locked. You may choose to lock an interest rate after we receive the complete and executed purchase contract. Borrower must submit purchase contract within 90 days of preapproval. If the rate at time of lock is higher, or a rate lock expires prior to funding, or for adjustable-rate loan programs when the index value rises, we must determine your ability to repay the loan at the higher rate, which may lower the loan amount or invalidate the preapproval. Not available on all loan products. Not available on refinance loans.

MAP5910691 | 09/2023

More from this month's issue