Why You Need To Write A Back-Up Offer
Today I wanted to briefly write about Back Up Offers in this Austin Real Estate Market.
Well, it is another year/month/day of me writing about the crazy Austin Real Estate market.
It is March 2020. Rates are low. Inventory is low and that means when a home is priced right, we are typically seeing multiple offers. In fact, every single offer we have written this year has been in a multiple offer situation so far this year.
If this sounds discouraging…well, it is, and I am sorry. Not only does it mean you should work with a really well educated/informative Realtor who can navigate you through obstacles and pitfalls of purchasing your (possibly first) property, but it also means you should be writing back up offers!
(Yes that’s 1.6mo of inventory in the ATX/RR area-a “balanced market” is 6mo of inventory. Yes this means we are in a seller’s market and it is quite competitive).
What is a Back Up Offer?
A back up offer is the “second place offer” as I call it. When you do not win in multiple offers, you may submit a back up offer. Once an offer has been picked a property is considered “Under Contract” or “In Escrow” as some other states call it or “Pending.” When a property is “pending taking back ups” this means it welcomes a contract to the “second place position.” If ANYTHING should happen to the first offer (be it change of heart, financing falls through or seller and buyer cannot negotiate post inspection) if the buyer terminates the back up offer then becomes the offer in first. It is negotiated exactly as the contract in first place, it has money held in escrow (with the title company) and the back up buyer may still look and make offers on other properties.
What terms are negotiated on a back up offer?
Honestly, everything is practically the same as a regular offer, except you are adding a day that your back up offer will no longer be considered and you attach the back up addendum to your offer. And typically we negotiate less money in earnest and option with a back up offer with a special provision stating that if*** our offer moves into the first place position, more money will be deposited. Typically earnest money is 1% or more in this market.
Why would a back up offer move into first place?
Many reasons, actually.
I can tell you what I see the most in this marketplace is Buyer’s that overcommit and become too excited about a property, then after a day realize either they don’t want the property or were not fully pre-approved as they thought or change of heart. In Texas a buyer has a right to back out for ANY reason during the first days of being under contract (typically I see anywhere from 5-10 days, the fewer the days, the stronger the offer). From time to time a buyer may back out because they found another property, cannot obtain financing after all or could not come to terms post inspection. This could mean they walked away because they did not like how the inspection turned out, or could not come to terms with the seller.
What do I have to lose when I write a back up offer?
Nothing but a little time, really. However, in my opinion it is totally worth it if you loved the property.
And now for some good news–we (the team and I) are four for four in back up offers so far this year. Some may call it luck, but I say luck is when opportunity and preparation meet! You never know unless you try.