Kari McCoy commentary: What do backup offers mean to buyers?

Question: Dear Kari, My husband and I have been looking at homes with our realtor for several weeks now. Over my lunch hour, the realtor showed me the perfect home but by the time my husband got off work, it already had an accepted offer. My husband feels badly and wants us to try to make a backup offer and I am not sure how I feel about that. Could you please offer some advice? Answer: Thanks for your great question. This is not an uncommon situation, particularly of a home in high demand with a great floor plan, perfect neighborhood and priced at fair market value. Let's look at what a backup offer means. This occurs when the seller already has an accepted offer. However, there are most likely several contingencies in the seller's first offer, such as a roof inspection, a termite/pest control inspection, HOA documents to be approved, seller's disclosures, the home must appraise at the purchase price, there could be problems with the buyer's loan or just plain old cold feet with buyer's remorse setting in. As you can see, there are many items that could change the buyer's mind; henceforth, they back out. During the contingency time frame period in the first purchase contract, their deposit money is well protected. For instance, if the buyers back out for just about any reason during their protected contingency period, they will receive all of their deposit money back and move on to look for another home. In some situations, buyers ask the seller to make too many repairs or ask the sellers to credit them large sums of money for repairs. In this situation, if the seller has a backup offer hanging in the wings, they may not be as motivated to work with the first buyers with their request. This is especially true if the backup offer is for more money than the first offer. However, the first buyer will always have the right to accept the responsibility of the repairs themselves and move forward with the contract. Realtors refer to this as leverage in the seller's favor. Backup offers need to be in writing with acknowledgement of the existence of the first offer and will be subject to the first buyers canceling the contract in writing. Some might believe backup offers need to be equal or greater in price than the first offer, but this is not true. The backup offer can be whatever price and terms that are agreeable to the buyers and sellers. The good news is, if this event did take place, then the backup offer automatically becomes first buyer position and nothing more needs to be signed. Keep in mind backup offers are a legally binding contract. If you are in a backup position and you would like to still look at other homes for sale, then you should make sure this is spelled out in your backup offer. This will allow you to continue your home search instead of putting all your eggs into one basket. Typically, backup offers do not require any deposit money. When inventory is low, buyers may be wise to consider working a backup offer situation and from the seller's point of view, backup offers are welcomed. Sellers benefit from having a backup offer because they have a better possibility of getting their home sold. They may receive a better offer with better terms and a higher price. Finally, they no longer have to keep showing their home to prospective buyers and they do not have to have public open houses on weekends. Good to know in the event the first buyers do not continue with the sale, they most likely will have inspections on the property the sellers can then forward to the backup buyers, saving the backup buyers valuable time and money. Talk with your realtor and be sure you clearly understand the terms and possible impact of the backup offer before you agree to take that step. I wish you the best of luck. Kari McCoy owns the Kari McCoy Group, Residential Real Estate, at Lyon Real Estate. Call her at 916-933-KARI (5274) or e-mail her at sold@karimccoygroup.com. #00854188