Have you ever Considered Submitting a Back Up Offer?
Have you ever seen a property you love only to realize that it already had an accepted offer? This situation is happening more and more often in this busy real estate market, where prepared Buyers jump on properties as soon as they are listed (if the Seller is willing to look at offers right away). If you happen to view a great property too late, you should considering submitting a back up offer.
A back up offer is just that – a secondary offer that would come into play as soon as the first accepted offer falls apart (and yes, accepted offers do collapse). The best part about a back up offer is it kicks in as soon as the first offer collapses, before any other buyers can think about submitting an offer. This lets you avoid potential multiple offer situations if the property becomes available again. Back up offers can only be done when the first offer is conditional (meaning has subject clauses on the offer).
Back up offers are something you should consider if a property you love already has an accepted offer, or if you lose in multiple offers. If you’re involved in a multiple offer situation and get word that another Buyer has won, the first thing you should think is “back up offer”. Emotions are high during multiple offer situations, so there is a chance that the winning Buyer may have second thoughts, or may not have the financing they thought they did (especially if there was a bidding war) and have to terminate their offer.
If you’re a Seller, a back up offer is something to consider if you want security in knowing that your home is under contract to be sold. This can help limit the number of showings/open houses and gives you a little more certainty that the property will sell one way or another. Of course, both offers can eventually terminate (if they are conditional) if the Buyer discovers something they don’t like, either in the strata documents, home inspection, or their financing, but you increase your odds of selling if you have multiple Buyers under contract.
What Makes a Back Up Offer?
In order to submit a back up offer, a standard contract will be negotiated as they normally are (dates, price, subject clauses, terms, etc) with an added subject clause which is conditional based on the Seller’s situation. The clause states:
Subject to the Seller ceasing to be liable in any way under the previously accepted contract or any amended or re-negotiated contract with the Buyer under the previously accepted contract. The Seller reserves the right to amend or renegotiate the previously accepted contract in any manner whatsoever including amending subjects, terms, closing, adjustment and possession dates and purchase price.
With this clause, the offer will never be official unless the first offer the Seller accepted collapses. Your back up offer kicks in as soon as the first offer collapses, which means this clause is removed from the contract and you can continue working on your due diligence as per your subject clauses. If the Buyer who has the first accepted offer officially buys the property, your back up offer terminates and you’ll have to start looking for your next property. Keep in mind if you have an accepted back up offer in place, you shouldn’t be submitting offers on other properties until you know for certain what is happening with that property.
With back up offers and any other offer situation, you want to make sure that you have a realtor with strong contract knowledge and negotiation techniques to ensure that you have the best chance possible to secure the property that you love. Contact us to sit down and chat about what you’re looking for, and what you need to do to get it.