In a sellers’ real estate market when there are few homes available and a large pool of ready and willing buyers, many of those buyers get left in the dust. It’s aggravating to fall in love with a home only to learn that there are several other offers on the seller’s table. Competition, in this instance, isn’t healthy.
Just because someone else got his or her feet in the door first doesn’t necessarily mean it’s a done deal. There are many potential pitfalls on the road to closing that may just derail that particular transaction. If you make a backup offer, you’re in prime position if that comes to pass.
What you need to know about the backup offer
A backup offer puts you in line to buy the home should the primary offer fall apart. We’ll get into some of the reasons this might happen in a moment. The backup offer is a binding contract (an offer to purchase), once all parties accept and sign it, so ensure that you are approved for the amount you’re offering and fully prepared to follow through on the purchase.
If the seller’s current buyer backs out for any reason, your offer is already accepted, so there is no renegotiation. Make sure that when you submit the backup offer you’ve included all contingencies that are important to you, such as one for approval of the home inspection. We will walk you through this, every step of the way.
So, why might a sale fall through, leaving a great big opening for you to step into? Let’s take a look at some of the most common hazards.
Many homebuyers don’t understand that most lenders will perform what is known as a “soft pull” of their credit reports just before closing. This is done to ensure the lender that none of the borrower’s financials have changed.
Any change, whether it is a new job, loss of a job, piling up debt on a credit card (wait until escrow closes to buy that new furniture), may result in the buyer’s mortgage being denied – even at the last minute. Naturally, if this happens, your backup offer automatically steps up to primary position.
If the buyer in first position is obtaining a mortgage, the lender will want the home appraised to ensure that it isn’t lending more money than the home is worth. If the appraiser determines that the home is worth less than he or she offered, it will deny the mortgage.
In this case, the buyer can dispute the appraisal, request that the seller lower the price, opt to pay the difference between the offering price and the appraised value in cash, negotiate with the seller to pay half of the difference or walk away from the deal.
Again, if he or she walks, you win. But, keep in mind that your bank’s appraiser may also come in lower than the asking price, so think about the aforementioned options.
Problems with the home inspection results
The home inspector is responsible for pointing out problems in the home that are visible. In other words, he or she cannot tell a homebuyer what’s lurking under the floorboards or behind walls.
Most professional inspectors take their jobs quite seriously, and will note even the smallest of details, however. Large photos of a small crack in a wall can be alarming to some buyers, and larger problems may cause the entire deal to fall apart.
Buyer’s home sale falls apart
Many homebuyers are also home-sellers and create a contingency in the purchase agreement that states the purchase is based on the successful sale of their current homes. It’s a tricky process – trying to time the sale of one home to purchase another – and it frequently causes the death of the purchase. Their loss, however, is your gain as you will move into first position.
Backup offers don’t always get the home, but enough of them do that, if you love the house, you should consider submitting one.