There are many misconceptions about backup contracts, so today I hope to clear a few things up.
If you have a buyer who wants to provide a backup offer, you have to fully negotiate that offer with the listing agent, and it needs to be signed and executed just like any other offer. It also has to have the addendum for the backup contract filled out completely. Your client needs to provide the option money and earnest money, and they’ll go to title just like any other offer.
You’ll need to know how the first contract is dated and then give a time frame for how long it’ll be in effect, meaning the date that, if the first offer doesn’t fall through, your buyer can walk away from the deal. If your buyer decides to terminate the contract before it becomes first place, their option money will stay with the seller. If their backup offer becomes the winning contract, your option period begins as soon as your contract takes effect, not the date of the original executed contract. Ensure your buyer understands that if they provide a backup contract and secure their position as second place, their earnest and option money will be tied up.
If you have questions about backup contracts or anything else you’d like to discuss with us, reach out via phone or email. We would love to help you.