Sunday, October 26, 2014

Backup, What is it Good For?

Backup contracts are widely misunderstood, in my experience. In simple terms, an executed backup contract is a contract that will automatically become primary if the existing contract fails or cancels. If the existing contract does not fail and closes, the backup dies. The backup buyer can cancel the backup at any point during the process prior to becoming primary. In a market like ours with more demand than supply, a savvy buyer should be ready to deploy a backup offer in the right situation. That situation often happens when a buyer loses a desirable property in a multiple offer situation. It can also happen when a buyer realizes that the property that best fits their criteria is already under contract.

What are the drawbacks for a buyer making a backup offer? Other than the small amount of time it takes to write and negotiate the backup or the slim odds of it becoming primary, I can think of none. A buyer does not usually make an escrow deposit at the time of making a backup offer and most continue their search. If they find a property they like better, they negotiate for that one and, if successful, cancel the backup. If a backup offer is stronger than the primary, higher price, better terms, etc., then the seller is less likely to make any concessions for the first buyer. That means when the first buyer makes a request for post-inspection repairs or an extension to closing date, those requests are probably going to get denied by the seller increasing the odds that the first buyer will cancel. Sellers should welcome backup offers first for insurance of a closing and second for post-contract bargaining strength with the first buyer.

Our TL;DR takeaway: Buyers and sellers should employ backup contracts when suitable as another tool for successfully buying or selling property.

I took the pic at the top last week in the northern Abaco islands during a boat delivery from Florida. It was a smooth crossing with little to no wind the entire trip. Not so good for sailing but, with reliable diesels, not a problem. The beauty of these very close islands is breathtaking and off the radar for most Floridians. A shame for them but a plus for those of us who visit this special place.

"A goal is not always meant to be reached, it often serves as simply something to aim at." ____Bruce Lee

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