With so many folks wanting to buy homes and so few homes available to purchase, it’s tough being a home buyer in Madison’s current real estate market. It’s frustrating as well for us to watch our clients fall in love with a home only to find out someone else beat them to it.
There is a solution, however. While it doesn’t always work, it does often enough to consider it if you truly want the home: submit a backup offer.
What is a backup offer?
The actual backup offer consists of a contract to purchase the home and a backup addendum. When signed, these documents will automatically place you in first position should the current buyer not consummate the purchase.
While there are benefits to submitting a backup offer on a home you’ve fallen in love with, there are disadvantages as well.
We frequently find that our buyers in primary position become even more tenaciously attached to the home when they know someone else wants it as well. They become more forgiving of potential problems with the home, they are more willing to overlook the seller’s denials of requests for concessions.
Benefits include the fact that as a backup offeree, you are perfectly within your rights to continue looking at and making offers on other homes. If that offer is accepted, you can remove yourself from consideration on the other home. When properly executed by your real estate agent, the backup offer will allow you to bail without loss of your earnest money deposit and without legal ramifications.
There are many “weak” points in all real estate transactions, presenting a variety of reasons the first transaction may fall apart, placing you upfront to get that dream home.
Problems with the mortgage
Too many first-time home buyers are woefully uninformed about the mortgage process and it’s a pity. One of the most important warnings for buyers is to do nothing to change their finances. This means not changing jobs, not moving money from one account to another and never, ever making large purchases on credit.
Your lender will most likely pull your credit report one final time before closing and if there are changes, your loan may be denied. If this should happen to the primary buyer, and the deal is derailed, you’ll move into his or her position.
If the lender’s appraiser finds that the home’s market value is lower than what the buyer has offered, the loan will be denied. Yes, the buyer has options here, the best of which is that the seller lowers the asking price. But there is a good chance that the deal will fall apart.
The home inspection report
One never knows what problems are lurking in a home. Even newly constructed homes can have problems so it’s always a good idea to have a home professionally inspected. This part of the process is probably most responsible for a transaction’s demise.
The home buyer as seller
If the buyer is also a seller, meaning he or she needs to sell a current home before the purchase of this one can be finalized, and the current home doesn’t sell, the transaction implodes. Your offer then moves into primary position.
While submitting a backup offer is sometimes a wise decision, situations in which your backup offer may prove to be fruitless include:
- If you are competing against an all cash offer
- If the buyer has waived most contingencies
- There is a backup offer ahead of yours
The bottom line is that if you’re head over heels over a home and someone has already submitted an offer, what have you got to lose by being in backup position?
Posted by Jolenta Averill on