When I was a new agent, I did not fully understand the concept or purpose of a back-up offer. My client lost a house in a bidding war and the Listing agent "told" me that we were in back up position. I took him at his word, but when the house came back on the market, we were not given first rights because we did not have a legal document that said it was ours. Fortunately, we found a more perfect home for my clients, but it was a painful lesson for a new agent.
Six weeks ago, I showed a home to a client that they fell in love with. It was perfect! Unfortunately, they lost the bidding war against a cash offer that was actually lower than their offer but had the potential to close more quickly. I had a feeling about this one and my clients put in a back up offer. I was thrilled when 10 days later the Listing agent called and said the cash buyer had terminated the contract and we were under contract on my client's dream home!
So what is a back up offer? It is an official contract exactly like a normal offer. The only difference is in the way the dates are written and it is written in language that allows the back up offer to kick in if the original offer terminates.
Is it a good idea? If your client loses out on a home that they love and the Seller is willing to accept a back up offer, then I think it can be a good strategy. It means however that you are in essence waiting for the other contract to terminate and essentially can not go under contract on a different home.
In the case of my client, it was a good idea, because the back up was only for a 2 week period, - the time period the cash offer had to close. They were held out of the market for a short period of time for a home they really wanted. For them, it was worth a two week wait and it worked out. We are finding that often cash buyers are backing out of homes and so it may be a good strategy if you find something you love!
The negative side is if you are waiting 30 or 45 days, then it may not be the best strategy, because you are "out of the house hunt" during that time frame. But if the home is perfect and the timing is right, a back up offer may be a good strategy for landing your dream home! If you would like any information on buying or selling in the Colorado market, give us a call: 303-495-8363!