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Lately, I’ve noticed a new phrase showing up in real estate listings: accepting backup offers. This is a term I’ve never seen before. However, the more I look, the more I see it.
Mostly, the term accepting back up offers shows up as soon as a home or apartment goes pending. Pending means that the homeowners have accepted an offer.
When you see that a house is pending and accepting back up offers, that means that the sellers will consider other offers. This is in case the first one falls through.
Sometimes you might see pending but continue to show. It’s sort of the same thing without asking for additional offers but in the hopes that you might get additional offers.
So, why would a seller accept backup offers? In a hot real estate market, anything can happen.
For example, the first person who made an offer might not be able to get financing. Or, the first person to make an offer decides they don’t like the results of the inspections so they back out. Or, any number of other contingencies.
By accepting back up offers, the sellers literally have a back up should the first offer fall through. So, rather than have to relist the home all together, they just move on to the second person on the list.
Recently, my husband and I were looking to invest in a local duplex. We knew that the rental market in our town was quite tight. And the property manager we’d been working with told us that she could rent out both units easily. In addition, she was confident she could get a monthly rent that was almost double what our mortgage payment would be. That was a no brainer for us.
So, on a Monday, a duplex came on the market. It was what you call a turnkey property. That means it needed no work and was ready to turn over and be moved into.
The kitchens were redone, the bathrooms were up to date, and the carpet was new. It was perfect.
Not surprisingly, we weren’t the only investors who thought so. Because even though we had a showing for the next day, our realtor texted that night to say that the owners had already accepted another offer. However, they were honoring any already scheduled showings and would be accepting backup offers.
The next day we went to see the duplex. It was perfect. I asked our Realtor to find out whether the people who’d make the original offer had given them full price or what. She said she wasn’t allowed to ask that.
So when we went to the showing, I asked if they got a full-price offer. I figured I’m not bound by any real estate rules.
The Realtor representing the sellers didn’t say anything. In fact, she looked a little shocked at my chutzpah at asking. But then she motioned her index finger towards the ceiling, indicating that it had been an above-asking offer. No wonder the sellers had said yes so quickly.
After the showing we asked our Realtor about making a backup offer. She said it couldn’t hurt to submit one, but that we needed to know the commitment we would be making.
She explained that when you submit a backup offer, you are committing to buying the house should the first deal fall through. You can’t change your mind once they get to you in the line. So, it’s a big commitment and one you really need to think through.
We did and a few days later we decided that, yes, we really did want to put in a full-price backup offer. While we couldn’t meet the over-asking price, we figured it couldn’t hurt to give them their full price, just in case.
It was too late. Our Realtor told us that they’d already received one backup offer, but declined it. I’m guessing someone else took the full-price approach we wanted, and the sellers decided it wasn’t good enough.
Then, she told us that since the duplex was so popular, the sellers figured they would just put it back on the market if something fell through. And, I’m guessing, that if that contingency came to fruition, the asking price would be higher.
It would probably be the over-asking price they got from the original offer. So, in the end, we would either just have to let this one go or decide if we would be willing to pay more and still have it be a good investment for us to make in a rental property.
Now that I’ve explained what accepting a backup offer means, let me address other terms you might see when buying a home.
When you see a real estate listing that’s gone pending, it means, as I said earlier, that the sellers have accepted an offer. Pending offers fall through all the time. So, if you’re interested in a property that’s gone pending, I would still keep it on your favorites list in your favorite real estate app. You never know.
When you see that a real estate listing is pending but continue to show, it’s similar to pending but accepting backup offers. That is, the sellers know they have a hot property and they want to keep all options open.
In fact, they may hope that they get themselves into a bidding war by letting other would-be buyers continue to tour the home. A similar phrase might be active but under contract.
A home that has gone contingent means it’s moved beyond pending. It’s the next step in buying a home.
Usually, a real estate listing moves from pending to contingent after the inspection period has passed. It is during inspections that buyers have an out of their real estate contract. That is, if the house doesn’t pass inspections or the buyers don’t like what inspections reveal, they can back out of the deal.
Another reason a buyer might back out is if the home doesn’t appraise for the value of the suggested mortgage. I explained appraisal contingencies and more in this article about the definition of contingent in real estate transactions.
When your Realtor tells you that a home is off the market or has been withdrawn, it means the sellers have had a change of heart. They have decided to pull their home off the market from being sold.
When a home is withdrawn or off the market, it doesn’t mean it won’t come back on the market. Maybe the sellers realized that they needed to do certain home improvements before they could sell it at the price they wanted.
One time we took our home off the market because we wanted to change Realtors. We needed our contract with her to expire so we could hire someone else. There are lots of other reasons that a home might come off the market or be withdrawn.
If I’ve missed any confusing real estate terms beyond accepting backup offers or contingent, please let me know. I’d be happy to add to this post. The world of real estate is always changing and so are the phrases that describe the current market.
