Should Sellers Accept Back-Up Offers On Short Sales?

By
Real Estate Agent with Tutas Towne Realty, Inc. SL3226489
http://actvra.in/l8p

Can't Have Enough Back-Up...I had a short sale listing in Davenport, FL get under contract and go pending recently. We have had multiple buyers express interest in putting in back-up offers since it went pending. I also had a buyer making an offer on a Lake Nona short sale who maybe didn’t want to allow the sellers to take back-up offers. Both of these situations got me thinking about back-up offers and whether sellers should take them.

The short answer is a definite yes. There is no risk to the current buyer if there is a back-up offer and it alleviates a lot of risk for the seller. There is no reason, that I can think of, why a seller shouldn't take back-up offers. Let’s look at it from both the buyer’s and seller’s perspective.

From the seller’s point of view, they want to do everything they can to make sure the short sale process is successful. Even on a short sale the seller should require that a buyer put up an earnest money deposit at time of contract rather than at time of short sale approval. If a buyer isn’t serious enough to put a deposit up then they aren’t serious enough to get under contract on a short sale in the first place. If for any reason the deal doesn’t work with that current buyer then having a back-up offer from another buyer ready to go could save a month or two of marketing the home a second time. I say “could” because the back-up buyer may have moved on as well, you never know. But there is certainly no reason under the sun that a seller shouldn’t take back-up offers. But if there are, I’m sure some of you guys will set me straight in the comments section.

From the buyer’s perspective I also don’t see any reason not to allow the short sale seller to take back-up offers. One argument I have heard in the past is “what if the seller just decides to go with the other contract?” If the seller executes your offer and there is now a binding contract, then it’s just that...a binding contract. There are legal ramifications if either party doesn’t perform under the terms of the contract. A back-up offer just lets the seller cover all their bases. In my opinion, there is no risk to a buyer when allowing back-up offers on the short sale they have under contract. But again, if you have a different perspective or idea, please let me know it in the comments section. I’m not an old dog, I can learn some new tricks. :)

It never hurts to have a little back-up. What do you guys think?

Image courtesy of seantyler at Flickr

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Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

I see nothing wrong with backup offers...in fact, I now encourage my sellers to take them all the way up until closing.  The buyers however, may not want to put one it if they think they aren't going to get the home. I will be interested to see what others suggest in this post.  Oh, Suggested by the way :)

Oct 11, 2011 02:09 PM #1
Rainmaker
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Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

Hi Brenda, I agree. In this market it surprises me that some buyers want to put in back-up offers. But it's their prerogative I guess. I personally wouldn't make a back-up offer, but I also wouldn't mind if another buyer put one in on a home I already have an accepted offer on. If My deal didn't work there is no reason the seller shouldn't have a back-up.

Oct 11, 2011 02:34 PM #2
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Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Nate, you'd be doing your sellers a dis-service by Not taking backup offers, especially on a short sale where timing could be crutial. As for buyers, if my buyers were purchasing your listing, I'd rather you Not take a backup. If the appraisal comes in low, and my buyers want to renegotiate due to FHA 3.5% down (or whatever) and the backup buyers are going conventional, the backup offer could all of a sudden look a lot better to the sellers because they have the room to possibly pay a higher price for the home.

Oct 11, 2011 02:47 PM #3
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Loreena Yeo
3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co. - Frisco, TX
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I strongly encourage back-up offers. More often than not, the 1st one doesnt stay long enough to finish the transaction out.

When I have a back-up offer, again knowing that this sale is still with my seller as the principal, I will advise him to let the 1st contract be evaluated with the bank. No reason should the bank need to know about other offers out there.

I've had 2 and 3 back-up offers but not 12!

Oct 11, 2011 02:51 PM #4
Rainmaker
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Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

Great input Eric. That is exactly the kind of thing I was hoping someone would bring up in the comments. It really does depend on the situation of course, but I definitely get your point, that's for sure. If the first buyer is cash they probably don't have anything to worry about. But it not then you brought up a valid reason why it might not be a good idea in some circumstances. Thanks for the comment!

Oct 11, 2011 02:53 PM #5
Rainmaker
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Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

Good point Loreena. Agents really shouldn't be sending more than one contract to the lender. The banks hire someone to do a valuation of the property so the argument of getting them the best price doesn't apply. Either the number work for them or they don't, in which case the first buyer can renegotiate of walk. Which of course is where that back-up contract comes in handy. :)

Oct 11, 2011 03:05 PM #6
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Bill Gustafson
RE/MAX Marathon Vacation Real Estate - Key Colony Beach, FL

Nate,

Overall I agree with you on backup contracts. From the sellers' point of view, the more buyers who are interested, the better the chance of selling the property. From the buyers' seat, as long you are in first position, it really shouldn't matter, as long as only one offer is being presented to the lender at a time. But, if you use the short sale addendum here in our fair state, the form defaults to NO backup offers being accepted by the seller(s) while the current offer is being reviewed by the lenders. If you can get past that hurdle with the buyer's agent, no problem.

Oct 11, 2011 03:41 PM #7
Rainmaker
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Jackie Connelly-Fornuff
Douglas Elliman Real Estate in Babylon NY - Babylon, NY
"Moving at The Speed of YOU!"

Just with any other home, back-up offers should be there. With a short sale, the FBI is looking closely at them. If I were to tell an agent we are not taking back-up offers, myself and my broker could be in big time trouble. I have a short sale now with BofA and they said no back up offers. I had them email a letter stating why so my backside is covered.

Oct 11, 2011 03:54 PM #8
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Tammy Lankford
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Your Lake Sinclair Expert (706-485-9668)

If I represent the sellers, bring them on... every time.  I have no problem with it.

Oct 11, 2011 09:12 PM #9
Rainmaker
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John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

The fact is that nothing is gauranteed, so its best to have the back-up offer just in case. Its not great to BE the back-up offer because you don't know for sure you'll get the house. But its best for the seller to have a back-up plan. You would not be doing your service as the Real Estate Agent if you did not consider other offers and / or keep a backup offer available.

Oct 12, 2011 12:04 PM #10
Rainmaker
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Kasey & John Boles - Jon Gosche Real Estate
Jon Gosche Real Estate, Boise ID - Boise, ID
Boise, Meridian, Ada/Canyon/Gem/Boise Counties

The only way a buyer can dictane whether back ups are accepted or not would be if it was agreed to in the contract right?  As a seller I don't think I'd willing to sign a contract that says I can't accept back up offers.  I think seller's for sure should accept back ups.  Eric does have a point as to why it sometimes might not benefit a buyer, but still I think it's ridiculous as a seller not to consider them.  I've had agents who have discouraged offers and backups for whatever reason and sometimes I think it's just out of laziness and not wanting to have to do the paperwork for extra offers...worse part is when I see the house come back on the market. Too bad! Could have already had another offer! -Kasey

Oct 13, 2011 01:43 AM #11
Rainmaker
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Dominic Tartaglia
Tartaglia Realty - San Luis Obispo, CA
GRI, SLO first-time homebuyer specialist

Nate, If that image looks anything like your backup offer I imagine that you get your backups accepted quite often. The truth of it is that being in the backup seat doesn't hurt and I actually closed a backup offer this year and got a payday out of relatively little hasle.

Oct 13, 2011 04:30 PM #12
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Nathan Tutas

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