When two parties come to an agreement on the sales price of a home, there may have been other interested parties who also wanted to purchase the property. When this happens, one of two things occur. In recent times, a “backup” offer simply consisted of an offer held long after it had expired with the intention of approaching that buyer at some point in the future in the event that the current contract failed and the house went back on the market.
A true backup offer is different than this, however. A true backup offer is an offer that both the seller and buyer have signed that contains specific language indicating what position the backup offer is in and the conditions upon which that backup offer would automatically move into first position.
There’s a specific document that provides for this type of situation. It’s called the Additional Clause Addendum. On that addendum, there is a section called the Additional Clause Addendum.
On this document is a section that starts on line 9. It reads:
BACK-UP CONTRACT – CONTINGENT UPON CANCELLATION OF PRIOR CONTRACT: Buyer acknowledges that Seller is currently obligated by a prior contract to sell the Premises to another buyer. This is a backup Contract contingent upon cancellation of the prior contract. Seller retains the right to amend, extend, or modify the prior contract. Upon cancellation of the prior contract, Seller shall promptly deliver written notice to Buyer. Upon Buyer’s receipt of written notice of cancellation of the prior contract, Broker named in section 8r shall open escrow and Buyer shall deposit any required earnest money. The date of Seller’s written notice to Buyer shall be deemed the date of Contract Acceptance for the purposes of all applicable Contract time periods. Buyer may cancel this backup Contract any time prior to receipt of Seller’s notice of cancellation of prior contract.
And there you have it. If this verbiage is included in your contract, and both you and the seller agree to it, then you have a legitimate backup offer. When a seller will agree to this will be dependent upon the direction and conditions of the market. For instance, if I have 20 offers on one property which may drive the price up, and the contract that we have falls out of escrow, it may not be in my seller’s best interest to secure a backup offer that is lower than a bidding war may provide, so my seller may not want to sign a backup offer. However, if demand is low, and we have an opportunity to have someone on the back burner, limiting our exposure to a vacant home on the market in the event of a contract failing, then I as the seller might be more inclined to put a backup offer in place.