Every home seller's dream -- and every homebuyer’s nightmare -- is for the home to have multiple offers. Although only one buyer can purchase the house, the seller can use backup contracts to accept more than one offer. Backup contracts protect the seller in the event that the primary offer falls through. For the buyer, a backup contract affords the opportunity to purchase a home the buyer might otherwise have given up on purchasing.
How It Works
The way it works is simple: Buyer A presents an offer. The seller accepts it. Shortly thereafter, Buyer B notices that the home is under contract but decides to put in an offer anyway. Buyer B’s offer includes a backup clause acknowledging that her contract goes into effect only if Buyer A’s sale fails to close. If the seller accepts, he and Buyer B have a backup contract. Alternately, Buyer B might submit an offer for the home without realizing it’s already under contract. In this case, the seller could present a counter offer to Buyer B that includes the backup clause. The backup clause would inform the buyer that her sale is contingent on Buyer A’s sale not closing. The backup contract in this example is created when Buyer B accepts the seller’s counter offer.
The primary position is the one that results in a sale if things go as planned. Therefore, the buyer holding the primary position is the one who makes the first offer the seller accepts. As long as the buyer and seller satisfy all the terms of the contract, the sale will close. If, on the other hand, the primary buyer fails to satisfy the terms and the seller chooses to terminate the primary contract, the backup contract goes into effect -- and the backup buyer moves into the primary position.
It's possible, albeit unlikely, to have multiple backup contracts. Whereas the first backup is contingent on the primary contract terminating before the sale closes, each subsequent backup is contingent on each prior contract terminating before the sale closes.
The seller's agent must submit all written offers, but the seller is under no obligation to accept them. However, a seller who has accepted an offer can't break it in favor of a backup offer with better terms. A seller who breaks a primary contract to move a backup buyer into the primary position could find himself at the center of multiple lawsuits. REALTOR Mag gives a hypothetical example of such a situation that results in two buyers suing the seller for specific performance, hoping to force the seller to comply with the terms of their respective contracts. REALTOR Mag suggests that a backup-offer contract include a clause stating that if the primary buyer initiates litigation in relation to the backup offer, the sellers can terminate the backup offer.
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