Backup Offers: What are They and How do They Really Work?

In his latest special to Palisades News, Anthony Marguleas explains backup offers. Photo: Getty Images.

By Anthony Marguleas
Special to the Palisades News


What is a backup offer?

When there is an accepted offer on a property and another buyer wants to be in backup position, they can make what’s called a backup offer. You can be in backup position #1, 2, 3, 4, etc. A backup offer provides numerous advantages, yet many buyers are not familiar with the benefits.

When a home is in escrow, many buyer’s agents and buyers decide to wait for it to fall out of escrow before putting in an offer. What they may not realize is if you make a backup offer and the owner accepts it, then the owner must legally take your offer if the original offer falls through.

If you were to wait for the home to come back on and then write an offer you risk getting in a bidding war with other buyers. There are always significantly fewer buyers competing for backup position.

How does one write a backup offer?

The buyer’s agent writes a standard offer and then attaches a one-page backup offer addendum to it signifying what order of backup it will be – #1, #2, etc. Also the buyer’s agent signifies how long the backup offer will be vaild – typically at least 30 to 45 days.

What does it cost to put a backup offer in?

Unlike a standard purchase where you must put up a 3 percent deposit once a regular offer is accepted, there is no cost for making a backup offer. So you could write backup offers on a couple properties. Also once your backup offer is accepted you have legally tied up that property with no money.

What are some advantages to a buyer?

We have successfully represented many buyers by being in backup position and are very familiar with the benefits to buyers. Because you do not need to make a deposit when you make a backup offer, you could be in backup on more than one property at the same time. You can withdraw from backup position at any time up until you are given a written notice of cancellation of the first offer.

With 25 percent of escrows falling out, being in backup position is a smart move. Once a seller accepts in writing your offer as backup # 1, the seller must legally take your offer next if the current buyer were to fall out of escrow – even if someone were to offer $50,000 or $100,000 more than your offer.

Are there any downsides?

Some people are concerned a backup offer may solidify the first offer. For example, if the current accepted offer wants to renegotiate some credits or repairs from the seller, the current buyer may think twice if they know there is a backup offer on the property. This can happen but some properties fall out of escrow due to financing issues.

Do backup offers also benefit sellers?

There are benefits to the seller. For example, when a home falls out of escrow, there tends to be a stigma attached to the property. This means the seller runs the risk of selling for less when the property comes back on the market. If there is a built-in backup buyer then the property easily transitions from one buyer to another and never officially comes back on the market in the MLS.

Anthony Marguleas is the broker/ owner of Amalfi Estates. For the past 25 years he has successfully helped 1,000 families and sold over $1 Billion in real estate. He has 150 five-star reviews on Yelp and Zillow and has ranked the #1 Palisades agent based on number of sales and dollar volume for the past 5 years. Contact: (310) 293- 9280 and Anthony@amalfiestates.com.

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