Most buyers overlook or dismiss the idea of real estate backup offers when shopping for their next Vancouver home, mainly because backups are widely misunderstood. While there are pros and cons to backup offers, they provide good opportunities for buyers in situations where there is more than one party interested in the same property. In fact, backup offers are one of the most under-utilized strategies in busy realty markets.
How do real estate backup offers work?
Once a buyer successfully negotiates an accepted offer on a property, he/she usually has several days to remove subject clauses (such as financing, inspection, or document review). During this time, a second buyer can negotiate an accepted backup offer, which may be the same, lower, or higher in price. This backup offer will be automatically triggered and become effective if the first buyer does not remove subjects, for any reason, by midnight on their subject removal date, unless the seller agrees to give the first buyer an extension.
How does a backup offer benefit the buyer?
By having an accepted backup offer, the second buyer knows that if the first buyer can’t or won’t sign the subject removal for any reason, like not being able to get their financing approved in time, then the second buyer moves to the front of the line and nobody else can scoop up this property. Given that statistically about 20% of real estate deals fall apart at subject removal, this is worth the effort. Speaking of effort, it doesn’t take much. The realtors do most of the work in this case, so buyers have little to lose. Sure, the buyer only has a 20% chance of success but, hey, those odds are relatively decent for a property they really want. In a nutshell, a backup offer gives a buyer a guaranteed spot at the front of the waiting list, free of charge, and if they have their own subjects clauses then they can still get out of the deal if they want.
What are the disadvantages to the buyer?
Okay, nothing is perfect so, yes, there are a few disadvantages to the buyer. Firstly, many buyers can’t afford to have two offers on the table at the same time, so while their backup offer is on the table waiting for the other guy to default on his subject removal, the buyer may be limited in their ability to make offers on other properties. Secondly, the backup offer can sometimes be the catalyst that encourages the first guy to remove subjects on time; therefore, some people prefer to wait for the first deal to fall apart and then come in afterwards. But of course, they will face competition from others who are also waiting in the wings for the property to come back on the market.
What do sellers think about backup offers?
For sellers, having a backup offer is good news because they don’t have to re-market the property if the first deal falls apart; rather, they capitalize on the original marketing momentum. Sellers often require the backup offer to be at least as good as the first one.
For more information on realty backup offers, feel free to contact us. YourHomeTeam helps buyers and sellers all over Vancouver’s west side and east side to maneuver through complex negotiations, including offers, counter offers, and backup offers. Our clients span from Point Grey, Kitsilano, and Kerrisdale on the west side to Main, Fraser and Collingwood on the east side – any everywhere in between.
*Written by Annette Saliken, YourHomeTeam with Sutton Westcoast Realty – 604-808-4663