What is a Back-Up Offer And How Does It Work?

While it doesn’t happen too often in the current Sooke real estate market, occasionally, you might find a property that you love which already has an accepted offer on it. Or, maybe you saw the property a few weeks ago, and finally decided to make an offer and were too late. At this point, you have two options: wait and see if  the first offer becomes unconditional (and the property is sold), or you can sometimes write a back-up offer.A back-up offer is an offer written on a property where you’re hoping for the collapse of the first offer. It has several advantages over the first option described above. First, if the seller accepts your back-up offer, you can send the accepted contract to your bank or mortgage broker to get working on the financing. Second, it gives the seller another option if, for example, the first buyer wants more time to complete his due diligence. The seller might decline the first buyer’s request for an extension (and thereby collapsing the deal) and your offer would move into first position.

A back-up offer is written like any other offer with one important exception: a subject clause needs to be inserted for the benefit of the seller:

Subject to the Seller ceasing to be obligated in any way under the previously accepted Contract of Purchase and Sale on the subject property by (date).

The date would be the date for condition removal on the previously accepted contract. This ensures that the seller is not legally bound to sell the property to two parties , which would obviously create problems.

If at all possible, you want to get your conditions removed before the date for the other contract’s condition removal. That is, you want to have your inspection done, financing approved, and any other due diligence needed done so that the only condition left on your contract is the seller’s condition mentioned above. This way, if the seller is faced with the choice of giving the first buyer more time, and terminating that contract in favour of yours, it makes it an easy decision (the sale would be immediately firm).

Let’s look at an example: Joan and John place a back-up offer on a property on September 1. The previously accepted contract by Helen, the seller, is due for condition removal on September 14. Joan and John are pre-approved for their mortgage, and their broker confirms their financing by September 5. Their inspection is done September 6 and all other due diligence by September 7. They are able to remove all their conditions on the 7th and are now just waiting until the 14th to see if the first buyer can remove his conditions. On September 13th, the first buyer asks Helen for more time to complete his financing. Helen declines, because she has a ready, willing, and able buyer in John and Joan’s offer. The first buyer is unable to remove his financing condition and is released from his contract. Joan and John are successful in purchasing Helen’s property.

Obviously, you won’t always be able to get your conditions off before the first offer – they do, of course, have the advantage of time on this one since the seller accepted their offer before yours. However, it’s still a good idea to write a back-up, and you often have nothing to lose.

If you have any questions about purchasing property that you would like answered, or if you are looking for an experienced REALTOR® to represent you in the purchase or sale of a property, please contact me any time.



Published by Tim Ayres

Tim Ayres is a Sooke and Victoria BC REALTOR®, with Royal LePage Coast Capital Realty. Tim is actively involved in helping clients buying and selling real estate in the southern Vancouver Island region. Tim is an active member of the Victoria Real Estate Board and served seven years (2009-2015) as a director, including serving as President in 2014.

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