Winning the Home You Want with a Backup Offer
by Dave Williams
With over 50 years of real estate experience on the team we’ve seen our fair share of clients lose out on the home of their dream…and developed some strategies to help the snatch it back. Today we’d like to share some of those strategies that have helped our clients win back the home they always wanted.
What is a backup offer.
Real estate moves fast, a buyer working with a REALTOR® received nearly instantaneous updates of new properties on the market, so it’s not unheard of for a buyer to get an email at work one day with a new home on the market, in the price range and are they were looking for, make arrangements with their agent and visit the property on the way home from work and make an offer on it that night.
So what if you are the buyer that wanted to buy the property after seeing it the next morning? It happens a lot.
The good news is most offers on homes carry conditions, on inspection, mortgage approval by the bank, condo corp documents, etc. So while the home is Sold…it’s only Mostly Sold…not Completely Sold.
Here is the gist of a backup offer, “If the people who offered to buy your home back out for any reason, take this offer instead.” Just like any other offer it will be formal, presented in writing, and include one more condition that the first offer be declared null and void.
How to structure a backup offer.
A backup offer will be written up like any other offer to buy a home with the addition of one clause that the seller get released from the previous offer. However, there are a few other details to consider. The seller want’s their house sold, completely sold, not just mostly sold again. So to sweeten the pot we usually suggest that a backup buyer try to complete any conditions they may have in the same time frame as the original offer, and possibly offer a little more than the original buyers.
E.g. The original offer, presented on a Thursday had conditions on inspection and financing until next Friday at 5pm. On Friday if the original buyers back out the sellers would really like to sign the back up offer as a done deal…not conditional for another few days which may or may not work out. So when presenting the backup offer from the second buyers we would suggest that the backup buyers also get their inspection and financing done by the next Friday, so the sellers have an easy choice to accept the back out.
On Friday, the original buyers will either fulfill their conditions and get the home, or back out, and the second buyers get the home. But we want to make sure the second buyers in the back up position get the home.
Sweetening the deal.
At this point it becomes a question of “How much do you want this home?”
First of all we would suggest that the backup offer be THE BEST OFFER you are willing to make, there is little room at this point for negotiation, and in the long run a few thousand dollars are not going to make a huge difference when compared to living in your dream home. Since 1965 home prices in Ottawa have risen on average 4.75% per year, and only twice since 1954 have the home prices in Ottawa declined year over year for consecutive years. While this varies by area and year it’s a safe bet that your new homes value will exceed what you paid for it within a year or two.
By making the offer higher that what you think the original offer was (unfortunately we can’t find out what the first offer was, only guess) you can count on the Seller to be rooting for you to get the home.
Now how do you get the first buyers to root for you as well?
Here are two strategies we have in out back of tricks, have the sellers buy them out, or buy their offer.
If the backup offer is significantly better than the original offer, it’s in the sellers best interest to take the second offer, we’ve suggested in the past that sellers offer an incentive to the first buyers to back out. They take a few thousand from what the second buyer is offering and offer the first buyer a cash incentive to withdraw their offer.
The second strategy also involved offering the first buyers a pay off, instead the second buyers offer to buy the first buyers offer for cash. So the first buyer will fulfill their conditions, then assign the sale to the second buyers for cash. The second buyers get the home for what the first buyers offered!
There you have it, two strategies to win the home of your dreams with a backup offer. Be sure to discuss these strategies with your REALTOR® and keep in mind if there is an agent on the first deal they will need to be compensated for their time and effort as well.
Getting the home of your dreams though a backup offer is a question of How Much you want the home. You are going to overpay a little today for the life you want.