You've submitted an offer on your first home and can't wait to get to closing so you can move in. Then, your real estate agent tells you the seller has received a backup offer. What is a backup offer and should you be worried about it? Let's learn more about backup offers and how you can keep your offer from collapsing.
A backup offer is an offer received by the seller, after they've received the initial offer -- your offer. After your offer was received, the house went under contract and the MLS (Multiple Listing Service) listing status of the property may have been changed to one of the following:
- Under Contract, Accepting Backup Offers
- Active Backup
- Status Active (Backup)
- Taking Backup Offers
When "backup" is included in the MLS status, agents can still show the house and allow their clients to submit offers. Even if the status doesn't indicate backup offers are being accepted (ex. "Under Contract"), it's possible for potential buyers to submit a backup offer.
So why would a seller want to accept a backup offer? The most straightforward answer is they're concerned about your contract falling through so they want another offer in place, just in case. If your contract falls through, the backup offer is then accepted and the house is now under contract with the second buyer.
In the seller's contract there will be a contingency indicating that you have to secure a mortgage within 30 days (or similar). If you do not, the contract can be cancelled and the backup offer accepted.
If the house gets appraised and is valued at $15,000 over the asking price, you might find that you can no longer afford the house. If you cannot get approval from a lender for the new value, you will be out of the running.
If your real estate agent is inexperienced or incompetent, you may lose the contract because of missed deadlines. If the agent doesn't follow-up with lawyers to verify and prepare closing documents, for example, the deal may fall flat.
Although the seller probably had an inspection done before putting the house on the market, as the buyer, it's recommended that you hire an inspector as well. Your agent will put a contingency in your offer indicating the sale of the home is contingent on the inspection. An issue with the inspection, such as a crumbling foundation, will give you an opportunity to back out of the contract and the contract will go to the backup buyer.
As you aim to buy your first home, it's helpful to understand backup offers and how they can affect your chance of owning a home. Listen to the advice of an experienced real estate agent to help negotiate the best offer and stay on track with contractual deadlines. Talk to your agent to learn how to make your offer stronger and don't get discouraged. If your offer falls through, you can always move on and look at other homes. No matter what, there's a house out there that's meant for you. Don't give up hope and keep moving forward. Learn more about the ins and outs of buying your first home by visiting our home buyer's page: