I’ve been selling real estate for almost nine years now. I’ve seen an insanely hot market and I’ve seen, well, the opposite of an insanely hot market. And I’ve seen some in-between (kinda where we are now). When I first got into the business, things were really starting to take off into the stratosphere in terms of sheer nuttiness. Agents were writing offers on the hoods of their cars during open houses. There were almost always multiple offers on houses, with bidding going well over the asking price.
Things have cooled down now, as we all know. But even in this market, when a property is priced to sell, there can easily be multiple offers on it. It happens every day. And it can be extremely heartbreaking for a buyer to get their heart set on a house and lose it in multiples. The question is, though, once that happens, what are your options? One option you always have as a buyer is to attempt a backup offer. What’s a backup offer, you ask?
Lots can go wrong in an escrow. Something like one-third of all escrows don’t successfully close right now. In a time of increasingly strict lending guidelines, often a buyer who had been pre-approved early in the game finds out that there was some mitigating factor they or their lender weren’t aware of, causing their loan application to be denied. And when that happens, it’s back to square one for the seller. Another thing that might happen is a failure to agree on credits or repairs that are requested by the buyer after they’ve completed their inspections. An escrow can even fall apart simply over cold feet on the part of the buyer. I’ve seen situations where a potential buyer lost their job during the escrow period. My point is, anything can happen—and it often does.
The advantage of backup offers for the seller is that, should things with the buyer whose offer was first accepted go south, rather than having to put the property back on the market, hold open houses again, etc., you’re able to just go straight to that backup buyer and put them right into escrow.
So the question at hand is, should you make a backup offer? Different agents have different schools of thought on this. Some agents advise against it because they feel that when the buyer who did get the house knows there’s a backup offer waiting to swoop in and snatch up the property, that can serve to increase their willingness to hold the escrow together. It gives the seller more leverage in those negotiations over repairs, knowing they have a backup offer too.
I personally am of the school that thinks backup offers are a good thing. More often than not, my feeling is, someone’s going to put in a backup offer no matter what, so it may as well be my client. I have had many clients in backup position get the house they wanted. I always advise my clients that we should continue searching while we’re waiting to see what happens. If you find something else you like while waiting it out, you can always rescind your backup offer.
Keep in mind that just because someone else got the house and you didn’t doesn’t automatically mean that your offer will go into first backup. Typically, the seller will choose the second strongest offer to go into first backup position. You might not be it. You might end up in second or even third backup.
Backup offers can also be beneficial if you as a buyer come across a house you like that’s already in escrow. Maybe you just started looking, and for this one, you just couldn’t quite move quickly enough. Have your agent contact the listing agent. Is the current buyer still within their contingency periods? Then there’s always a chance of the house falling out of escrow, thus becoming available once again.
Make sure that the offer you submit as a buyer contains terms you are comfortable with. If the offer that was originally accepted falls out of escrow, you’ll be on deck, and there’s very likely no negotiating terms at that point. The offer you submitted is what will be accepted.
If you have any real estate-related questions, or know anyone who is planning to buy or sell a home in the near future, please don’t hesitate to give me a call at (323) 251-7883, or email me at [email protected].
Jefferson Hendrick is an L.A.-based realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at [email protected] or facebook.com/jeffersonhendrickrealtor.