If you are disappointed to find that someone else has already submitted a contract on your dream house, you may want to consider making a backup offer. The housing market has been tight everywhere in recent months, so discuss this option with your real estate agent if you really love the house. Backup offers don't always work out, but enough do that you might want to consider the possibility.
Because the backup offer is a binding contract, you want to be sure that your financing is approved and that you've included all the contingencies that you would have in a first offer. If the original contract falls apart for any reason, you must be prepared to follow through with the purchase. Make your offer a fully executed agreement signed by you and the sellers, outlining price and terms. This will ensure that they must sell to you within a specified time period if the house becomes available again.
There are many reasons the original offer might fall through:
- The buyers' loan might not be approved. Loans are becoming tougher to get and if they can't get approval, the buyers will have to back out of the deal.
- The lender will require a home appraisal to verify the home's worth. If the appraiser says the property is worth less than the price offered, the lender can deny the mortgage.
- The home inspection might uncover problems that the buyers don't want to deal with and the original contract can fall apart.
- The buyers may have made a contingency contract based on the sale of their current home. If that sale doesn't materialize in time, the domino effect could make your dream home available again.
- There might even be problems due to homeowner association requirements. For example, the buyers might have three pets and back out of the contract when they discover the HOA only allows two.
Several of these scenarios can work well for you and your backup offer. If the first deal crumbles, the sellers may be willing to move ahead very quickly with your offer. With a contract on the table, they had already begun the mental process of packing, moving and handing over the keys to someone else. If their deal comes to a screeching halt, the seller may be very willing to accept your backup offer just to keep the momentum going.
You may also realize an advantage if problems were uncovered by the inspection conducted for the first buyers. Those issues aren't going away, so the seller may be more reasonable in negotiations with you rather than lose the deal a second time. The seller is legally required to disclose any problems with the house, so you will know any of issues uncovered by the first inspection before you start to spend time and money on inspections of your own.
Real estate transactions require many steps and something can go wrong at any phase of the process. Rely on your agent to walk you through every phase, including preparing a backup offer. It may save the day when your dream house is on the line.