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 MM, Real Estate Pro in ,

when writing a back up offer, do I need to state in the contract that this is a back up offer?

Asked by MM, , Mon Jan 19, 2009

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Catherine: 100% agree with your PPA & Short Sale comments.

Just to attempt to add more general clarity on the PPA:

In order for a back-up offer to be "official" the Seller must sign the PAA, accepting the offer as submitted, or go through a series of countering the backup offer until agreement is made, to contractually obligate the Seller to sell to the backup offer agreed to. Until a PAA is signed, the Seller can continue to take backup offers, and it is not until a PAA is signed that the final backup offer position is determined (i.e. backup #4 could come to agreement with seller first, which would put them in effective backup offer #1 position).

- Depending on the market and the Buyer's level of interest in a particular property will dictate the use of the PPA (backup offer).
- The backup offer is contingent upon buyer receiving written cancellation of any prior contracts and related escrows.
- The backup offer provides for a buyer-selected cancellation date of the backup offer.
- All bets are off on Short Sales as these are done "subject to lender approval."
0 votes Thank Flag Link Tue Jan 20, 2009
The reason for a buyer to want to be the designated back up offer is easy to see... they fall into 1st position if anything happens with buyer #1. Now on the other hand, some sellers do not want to indicate an official back up offer as they do want the choice of other buyers, or the choice to simply put it back on the market. No requirement for a seller to put a buyer in back up.

Ok, and I'll just say it. Buyers should not be making multiple offers on multiple properties on a short sale. If a short sale seller accepts your offer subject to the bank accepting the deal - you have a ratified contract. I think the reason the short sales go so wrong is that many listing agents simply don't know how to work them and are submitting multiple offers to the bank and/or not having seller ratify any of them. The nuances to a short sale are too numerous to go into here, but I would be really careful when writing offers on multiple properties or arbitrarily cancelling a contract before the date you specified in your short sale addendum. A contract is a contract. To protect your buyer, just put a short date in there, i.e. 1 month to hear back from lender.. then at 1 month your buyer can choose to walk away rightfully or extend the date. Keeps everyone on the same page.
Web Reference: http://www.ccshortsales.com
0 votes Thank Flag Link Mon Jan 19, 2009
Mm: Just an "add-on" to my statement that there is no need to specifically identify an offer as a "backup offer":

Regarding contract expiration, unless specified by the buyer, the standard CAR “Residential Purchase Agreement” has default contract verbiage that terminates the offer unless the offer is signed by the Seller and received by Buyer/Buyer's agent before 5PM on the 3rd day after the offer is signed by Buyer (not necessarily when the Seller receives the offer).

I believe Catherine is referring to Section 1 of CAR form “Purchase Agreement Addendum” which provides for the Seller to acknowledge the position of a buyer’s back up offer. In my humble opinion, Section 1 of this form provides little practical value because a Seller will typically choose the best offer presented (and that’s not to say the highest offer price) no matter what an offer’s position might be. In addition, all offers must be communicated to a Seller, unless a Seller has given clear direction otherwise. So, where’s the value of being in back-up position #1?

As Carl points out, Buyers are making multiple simultaneous offers on Short Sales (these can be very frustrating). One way to have the Listing Agent take a Buyer’s offer more seriously than others that might potentially be presented is to use CAR's "Short Sale Addendum" that targets the expiration of the Buyer’s offer to the Short Sale lender’s approval, within reason (extended timeline for Lender response determined with buyer).

Best, -Steve
0 votes Thank Flag Link Mon Jan 19, 2009
Hmm, I'm surprised no one has said this yet, but there is a form that we use to put an offer into back up position "officially." Your realtor would know this.
Web Reference: http://www.ccshortsales.com
0 votes Thank Flag Link Mon Jan 19, 2009

It depends on what type of property you are writing on - your Realtor should know this. If it's a short sale, your offer will "time out" in 72 hours. Offers such as this, although technically "expired", stay in place until you decide to pull it or another offer is accepted. There is a loose understanding that you can pull the offer at any time prior to acceptance. And MANY buyers do just that if they find other properties they want to write on. Some buyers have many offers out to short sale listings hoping they can land one of them. Once they do, they pull all the other offers. In this type of scenario, all offers are submitted to the bank for the bank to decide upon and the bank picks one.

If it’s an REO, the offer will, more than likely, “time out” as well – if the first offer is accepted, then yours is “dead” anyway. If it’s not, then you are next in line and you offer becomes “active.”

As you can see, in both these cases, verbiage about “back-up offer” is unnecessary. Just for the sake of argument, let’s say an offer is out there and gets “accepted” – in 99% of the time it will be outside the 72 hour window and is not legally binding. Typically, the Realtor will call you and ask if you wish to “activate” your offer. You say yes, you’re good to go. Say no, and it goes in the trash bin with all the rest.

Let me know if you have any questions.

Web Reference: http://www.carlmedford.com
0 votes Thank Flag Link Mon Jan 19, 2009
There are specific requirements for a backup offer that must be followed to make sure that you are truely a backup offer (if 1st position) should the current offer fail. Without the protection of the backup offer requirements, you are not guaranteed a place in line.

Best of luck!

0 votes Thank Flag Link Mon Jan 19, 2009
No, but you may want to place a time limit on the acceptance of the offer, depending on the status of the property you are trying to buy. -Steve
0 votes Thank Flag Link Mon Jan 19, 2009
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