Technical Talk: Accepting Back Up Offers

So, what does that MLS status PB really mean? This status indicates that the property is under contract aka PENDING but that the seller is open to receiving and considering BACKUPS. How does this process work?

If a property is under contract, the seller has the option to review and accept a Back Up Offer with the use of an ADDENDUM FOR “BACKUP” CONTRACT. There are two primary blanks to complete on the Back Up Addendum.  Section A will identify the First contract by inserting the executed date of that contract in this blank. Section B will identify the date the Back Up offer will terminate.

If a seller wishes to accept a Back Up Offer with this Addendum in place the Back Up Offer will be executed and earnest and option money shall be deposited. If the First offer terminates on or before the date set out in Section B of the Back Up Addendum then the Back Up offer moves to the primary position.

At the time that the Back Up Offer moves into the primary position the executed date shall be amended to the date the back up buyer receives notice that the first contract has terminated. I recommend the agents execute an amendment reflecting the new effective date so no conflicts arise later as to when the option or financing periods began and end.

The seller and listing agent should understand that by accepting a BACK UP offer, that contract is binding and they may not later change their mind about its acceptance.

Why would a seller want to accept a Back Up Offer? Leverage. When negotiating repairs and concessions during an option period with the First Contract the seller can feel more confident and perhaps negotiate more aggressively knowing they have a Back Up Offer they can move on to if they are unable to come to terms with the First Contract. If the Back Up Offer is better than the First Contract the seller will be unlikely to make any further concessions beyond what they already agreed.

Why would a buyer want to place a Back Up Offer? In a hot seller’s market, this is a way to ensure that the buyer gets first dibs if the First Contract falls through. The seller would never have the option to place the property back to Active on the MLS.  It will require some patience by the buyer but they do have some control over the timing with Section B of the Addendum indicating the date when the Back Up Addendum & Contract expires.

I have found that Back Up Offers are not very common but they can be a good tool for both buyer and seller if all parties understand how to use them.