Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

59 responses to “Reader Question: Does my “backup offer” have any hope?”

  1. Kary L. Krismer

    I doubt we’ve done even 5 backup offers, so giving a percentage would be pointless.

    I would agree with Tim somewhat on the inspection issues mentioned. I think the biggest factor though is likely to be the prior buyer’s financing not coming through for one reason or another.

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  2. Gary Bracht

    I would look at it from the financing contingency standpoint…if the 1st postion buyers are seeking financing, what are the odds that the deal will fall apart? If it is 20% down on the primary offer, the chances are a lot better to go through than if the deal is an FHA transaction. I think NAR has the best numbers nationwide showing what percentage of deals are failing due to financing, but I don’t know how “scientific” the numbers are. Maybe some lenders can also share their pull through ratings on purchase deals. My gut reaction to the odds would be between 10-25% chance of failing depending on they 1st offer’s financing. If the back up borrowers are doing an FHA loan, then there is real danger for the back up offer is if the first offer is also doing an FHA deal too. If the 1st offer’s appraisal is low or has issues, and the 1st buyer’s deal falls apart, that appraisal sticks with the property regardless of the lender. I guess it all depends how much info the listing agent will or can share with buyer number 2 about buyer #1’s financing. I’m guessing, not much.

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  3. David Losh

    It depends on the market, but today, a same day back up, I think, will only bolster the first position.

    A couple of years ago buyers were making offers, and walking away during the inspection, today there is much more desperation just to get in.

    The one thing I wanted to add is to be sure to rescind your back up offer before making another offer.

    So, in my opinion your chances aren’t that good, but it’s better to be making offers than not to be engaged in the process.

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  4. ray pepper

    “If you submit an offer that’s non-trivially higher than the offer that the seller has already accepted and you make it clear that you are serious about buying their house, that might give the seller an incentive not to make any concessions to the “primary” buyers (e.g. inspection issues, etc.), which might lead to those buyers choosing to back out of the deal.”

    Oh..Yes..Thats a brilliant thought process…..buyers “might” choose to back out…The Buyer usually has a far better chance picking up tooth piks with his ass cheeks then submitting a back offer AND getting the home…………………NEVER SUBMIT BACK UP OFFER!!!

    I will tell you why:

    #1 ..David is correct…”will only bolster the first position” –not just today…Historically as well as today-Back up offers ALWAYS bolster the accepted offer to close because a sense of urgency is established and the Buyer feels they are getting THE DEAL OF A LIFETIME!

    #2. Never and I repeat NEVER show the seller any form of mercy in a real estate transaction…Accepting the position of “back-up” exposes your hand to weakness and the perceived “luckiness” or “being granted” a property because of someone elses misfortune..

    So what do you do……..?

    Easy……..Your Buyer’s Agent advises the Listing Agent that you have a VERY well qualified client that would like to know at the first sign of the deal possibly going dead. In the meantime the Buyers Agent advises that their client will continue to look for homes while we “wait.” Your Buyers Agent should call the LA 1x per week and remind the LA of their continued interest in the subject property. THEN WHEN THE DEAL GOES SOUTH YOUR BUYER is in a VERY favorable position because seller is FRUSTRATED and DOES NOT WANT TO HAVE ANOTHER DEAL GO DOWN! Your offer is NOW held in HIGH PRIORITY and I ASSURE YOU that many more items will be PAID for at inspection and the seller will be far more FLEXIBLE with the Buyer who just kept looking…

    RETRACT YOUR BACK UP OFFER IMMEDIATELY and FIRE your Agent for even writing it up and exposing your hand.

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  5. David Losh

    RE: ray pepper @ 4

    For Goodness sakes Ray, it happens. You’re going alone, you find a place, you write the offer, and submit. The listing agent doesn’t need to tell you there might be another offer, or that another offer came in. It just happens.

    Your offer is in, the other offer is in, and ba bam your in second, if you chose. It just happens.

    One thing I will say is that I’m surprised more transactions don’t fall apart after inspection. There is a lot of polished poop selling for high dollars out there.

    The other thing is second position can be better than first position because it gives the buyer distance. The second buyer maybe in better control so why not wait it out a few days?

    You may not know what it’s like in today’s market. Here in Wedgewood every house sells at high prices, for polished poop. A really nice house sells like it’s a king’s ransom.

    So I don’t think my first thought would be to fire the agent, at least he, or she has something on paper. You just have to keep trying.

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  6. Kary L. Krismer

    RE: ray pepper @ 4 – In the past you’ve said you’d back out if multiple offers come in after you make your offer. Now you don’t want to do a backup under any circumstances. Very defeatist attitude.

    If I were to be critical of Tim’s analysis on the back up offer, it would be perhaps the part about making a better offer than the original offer. Sometimes that might be necessary or even prudent, but I have a bit of a time dealing with the idea of knowingly going above what you know the seller will accept. Even there though, sometimes I would not have any problem with that. It’s up to the client, not the agent.

    On the other hand, letting the seller know that your client would be reasonable on inspection items (or that they’ve already completed their inspection and would waive the inspection contingency without repairs or credits) that could go a long way, assuming that fits within what your client expected when making their offer. If the seller refuses to budge on the original offer’s inspection requests, that could easily cause a deal to fall apart.

    As to the butt cheeks and weakness comments, those are laughable. Of course a backup offer is subordinate to the original offer. The whole point of doing it though is to possibly put your client into a position on the property without once again exposing the property to the market and the other offers that you are so afraid of. Both Losh and Ardell have talked of ways of getting your client into position without facing the competition of the market, and this is yet another way, but with one huge difference: YOU KNOW THE OWNER WANTS TO SELL! Rather obviously you’re not going to make a backup offer on just any property, but refusing to make a backup offer on a property that fully suits your client’s needs is asinine in any market, but particularly this market.

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  7. Kary L. Krismer

    By David Losh @ 5:

    RE: ray pepper @ 4 – For Goodness sakes Ray, it happens. You’re going alone, you find a place, you write the offer, and submit. The listing agent doesn’t need to tell you there might be another offer, or that another offer came in. It just happens..

    Backup offers don’t just happen. Both the buyer and seller need to sign a backup addendum, and that almost always takes some discussion, perhaps the listing agent asking the buyer’s agent if their client wants to be a backup.

    Which brings up another point–sometimes the seller has multiple offers. Three of them may be from really bad agents that obviously don’t have a clue what they are doing, but two of them may be very good and hard to pick between. It very well may be in the seller’s interest to try to keep whichever buyer loses out in the process by asking if they want to be a backup offer. It would not be in the seller’s interest to ask the other three buyers that question, because their agents will still suck after the first deal falls through, and it would probably be better to see what else comes along given the fact they were able to get multiple offers before.

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  8. Kary L. Krismer

    By ray pepper @ 4:

    #1 ..David is correct…”will only bolster the first position” –not just today…Historically as well as today-Back up offers ALWAYS bolster the accepted offer to close because a sense of urgency is established and the Buyer feels they are getting THE DEAL OF A LIFETIME!

    Backup offers are not something that the first buyer would even know about. At best the listing agent might mention it to the first buyer’s agent, but I don’t know that the first buyer’s agent would necessarily even pass that information along to their client since the disclosure of that information by the listing agent was obviously just designed to influence the negotiations, and since the information would presumably be totally unverified.

    Using a similar situation, I would be reluctant to tell a client that a listing agent has said she has two other buyers’ agents who have said they will be making an offer. I would not want that to impact my client’s decision process. I will, however, give my client my own impression of how popular the property will be, because there are clearly properties which will move quickly based on price and condition.

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  9. ray pepper

    I will not reply to both of you gentleman because your experience in this Arena is limited based on your responses…”you simply do NOT know what you don’t know.” I’d rather put my time into things that really matter.

    More importantly though its TRUSTEE SALE DAY and thats far more refreshing then “shopping at the retail malls” if you may..Not to mention a Superbowl, 3 HUGE Bball Games I have to have my teams ready for, and an EPIC indoor soccer game!
    ————————
    PLEASE STOP KARY…”Backup offers are not something that the first buyer would even know about”….what planet are you living on? Do you really practice real estate?….I better stop…Have a great weekend everyone!

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  10. Kary L. Krismer

    By Gary Bracht @ 2:

    I think NAR has the best numbers nationwide showing what percentage of deals are failing due to financing, but I don’t know how “scientific” the numbers are.

    The only NAR data of that type I’ve seen has been something to the effect that X% of agents have had a deal fall apart due to financing. A Zillow Zestimate is more useful than that!

    As to it being scientific, first I would note that presumably the survey is only of Realtors, and not of non-Realtor agents. I would also note that if you survey 200 agents, they will not have all had the same number of transactions in the past year. Some may have had only 1 and some may have had well over 20. The agent who has had over 20 transactions will be much more likely to have had one transaction fail due to financing (the question that is asked) than the agent who has had only one transaction. Let’s say out of those 200 agents 40 of them answered they’d had a transaction fail. That would be 20% of the agents, but it conceivably might be only 40 transactions out of more than 2000, or less than 2% of transactions. So the NAR data is not giving you information on the percent of transactions that fail due to financing, you’re only getting information on the percent of agents that have had transactions fail.

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  11. David Losh

    Yeah, in today’s market place back up offers just happen, because listing agents have the luxury of stacking offers on the table and deciding what goes where. The listing agent doesn’t need to have a discussion about it.

    If you really wanted to push it you could even say the buyer is “lucky” to even being considered for the back up position.

    It’s a crazy market place out there.

    The good news is that the Real Estate agents, for the buyer, are desperate, and may have a melt down at any time, literally. Your second position can be pretty strong if you have a strong offer with strong representation.

    This boom, and bust cycle of multiple offers should be pretty standard by now. It’s been going on for over two decades. This market is particularly bad, but this to will pass.

    I no longer recommend waiting for the market to correct, because this is the third or fourth year of booming markets. You just have to make the best deal you can if you want to buy a house, and be persistent.

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  12. Kary L. Krismer

    By ray pepper @ 9:

    PLEASE STOP KARY…”Backup offers are not something that the first buyer would even know about”….what planet are you living on? Do you really practice real estate?….I better stop…Have a great weekend everyone!

    Apparently you cannot read, because I explained why the first buyer would not necessarily know about a backup offer.

    As to whether I really practice real estate, I don’t think you want to go there. I might just ask you what you really do for a living.

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  13. Kary L. Krismer

    By David Losh @ 11:

    Yeah, in today’s market place back up offers just happen, because listing agents have the luxury of stacking offers on the table and deciding what goes where. The listing agent doesn’t need to have a discussion about it.

    I don’t know why you keep saying that. A backup offer requires a Form 38A. I’ll prepare a Form 36 (withdrawal of offer) with just about every contract I draft, but I don’t ever just prepare a Form 38A. Backup offers don’t just happen. They are negotiated.

    Losing in a multiple offer situation does not mean that you have a backup offer in place. Presumably your offer had some sort of an expiration date on it in any case, and so it wouldn’t even be a valid document at the time the first offer fell apart and could not even be accepted by the seller.

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  14. ray pepper
  15. David Losh

    Ray, you don’t know what you don’t know.

    This is a crazy Real Estate market place loaded with desperate Real Estate agents.

    The first position may look great on paper and fall apart on execution. You never know, and in my opinion, yes people are paying way too much for poop.

    You’re seeing the same thing at the Trustee sales. It’s crazy out there, and it’s not just here in Seattle. I hear the same things from Phoenix, Southern California, Texas, Florida, and Neveda.

    What’s a buyer to do if they aren’t agressive in the market place writing offers?

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  16. David Losh

    Yeah, yeah, yeah, that’s the ticket write the offer like it was a back up?

    Geez.

    You submit before you have the opportunnity to negotiate.

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  17. Kary L. Krismer

    By ray pepper @ 14:

    RE: Kary L. Krismer @ 12http://www.youtube.com/watch?v=eYFI_z7SxSI

    Thank you George. ;-)

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  18. Kary L. Krismer

    By David Losh @ 16:

    RE: Kary L. Krismer @ 13

    Yeah, yeah, yeah, that’s the ticket write the offer like it was a back up?

    Geez.

    You submit before you have the opportunnity to negotiate.

    I have no idea what you’re trying to say there.

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  19. David Losh

    My mistake, I know better than to engage Kary Krismer.

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  20. Kary L. Krismer

    RE: David Losh @ 19 – Give me a break and simply explain what you’ve now repeated several times–that backup offers simply happen. Either that or admit you didn’t know what a backup offer is.

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  21. David Losh

    RE: Kary L. Krismer @ 20

    Oh, alrighty, let’s waste some time today with Kary Krismer?

    You submit your offer. A dozen other people may have submitted offers. The listing agent doesn’t have to talk to you until all offers are in. The listing agent probably shouldn’t say anything to you until all offers are in.

    You as the buyer’s agent you can get as huffy as you want, but you may just go to the bottom of the pile if you do.

    It’s a sellers market, so yes, back up offers will be in play, it is happening every day.

    So you can either agree to be in a back up position through negotiations, but you don’t get that opportunity until you have submitted an offer for consideration.

    The reason is that this is a “fast” market place.

    In the 1980s, some agents would give the buyer a pager so they could be reached at a moments notice. Some agents would have buyers sign a blank Earnest Money Agreement, fill it out when they saw a place that fit the buyer’s criteria, then submit to offer before the buyer ever saw the place.

    I think the Multiple Listing Service put in a regulation that made that a finable offense.

    Fast markets happen, and you are either making offers, or sitting this one out.

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  22. Kary L. Krismer

    By David Losh @ 21:

    So you can either agree to be in a back up position through negotiations, but you don’t get that opportunity until you have submitted an offer for consideration. .

    So I’ll take that statement as an admission that backup offers don’t just happen. The rest is totally non-responsive nonsense.

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  23. ARDELL

    The exchange between David and Kary explains why backup offers are generally not successful in the Seattle Area. Most backup offers are done the way Kary describes, as that is how agents deem backups to “work” which is literally “correct” but not successful.

    What David describes when he says “backups just happen” is the correct and successful way for a backup offer to be handled.

    This is because the buyer is NOT the one who is supposed to initiate the back up offer. The seller is supposed to be the one to add the Backup Form(s), not the buyer.

    When a seller receives multiple offers and wants to accept the highest price, even though that is not the “best offer on the table” for other reasons, the seller is supposed to accept the highest price AND accept the 2nd best in “backup” position. Now the seller is covered either way. He has a chance to get best price, but a fallback position if best price buyer threw out best price because his offer was skaky on other grounds.

    The seller is the only one who knows what all the offers look like and whether or not the one he is accepting into first position warrants the need for a backup. Sometimes it has something to do with the property’s likelihood to fall apart on inspection and not about the buyer at all. RARELY, if ever, is the reason financing as people are noting in the comments. IF financing were the primary reason, then the seller would have chosen the wrong offer into first position in the first place, which sometimes happens, but rarely.

    Another way to put what David is correctly saying “backups just happen” is that the SELLER initiates the backup…not the buyer. The seller with 6 offers should choose a 1st and 2nd, a primary and a backup. In areas where backup offers ARE successful (i.e. CA) it is because the market and the sellers and agents in that market, know how to do it David’s way vs Kary’s way.

    Local practice here is to do it Kary’s way and that is why the odds do not favor backups being successful.

    FOUR of my clients received the property in recent times via David’s method (loosely) in that we wrote an offer in the first round…and then received “the call” because we were IN the first round. The seller chooses the backup from the offers on the table, as David described. The Form Kary is talking about never was used in ANY of the 4 because the seller chose the “backup” from the offers in hand and put them straight into “the 2nd to go into 1st position” vs “backup”.So yes…my 4 clients moved into 1st position from a backup spot on the table…but not via the backup form Kary is describing and arguing about.

    It’s amazing how very right and how very wrong someone can be all at the same time, because reality and instruction rarely are a match.

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  24. Kary L. Krismer

    RE: ARDELL @ 23 – First, don’t describe your two situations as Kary’s way and David’s way. I know you want to support David, but he doesn’t have a way–he just apparently thought that multiple offers automatically result in backup offers. Any nothing I’ve said would limit my situation to being one where the buyer requests being put into a backup offer. In post 7 above I said:

    Backup offers don’t just happen. Both the buyer and seller need to sign a backup addendum, and that almost always takes some discussion, perhaps the listing agent asking the buyer’s agent if their client wants to be a backup.

    I really don’t see it being all that important who initiates the discussion of a backup offer. That said, if the seller initiates that discussion it would likely be because they had a hard time choosing between the offers, or perhaps the seller took a higher offer which the listing agent had concerns about closing. If the latter, then yes that could greatly impact the chance of success, but if the former, no it wouldn’t have an impact.

    If the buyer initiates the offer though, that very well could make the first offer more likely to fall apart for the reasons previously discussed. So if your client really really really wants the property, and the listing agent does not ask whether you want to be a backup offer, you’re more likely to get into a position on the property if you ask to be a backup than if you don’t. And that’s probably true even if you don’t actually get into a backup position.

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  25. Kary L. Krismer

    By ARDELL @ 23:

    FOUR of my clients received the property in recent times via David’s method (loosely) in that we wrote an offer in the first round…and then received “the call” because we were IN the first round. The seller chooses the backup from the offers on the table, as David described. The Form Kary is talking about never was used in ANY of the 4 because the seller chose the “backup” from the offers in hand and put them straight into “the 2nd to go into 1st position” vs “backup”.So yes…my 4 clients moved into 1st position from a backup spot on the table…but not via the backup form Kary is describing and arguing about.

    It’s not clear what time frame you’re talking about here. If this is discussions starting after the first deal starts unraveling, I would consider that entirely different than what the reader question is about. That’s about a listing agent trying to save a situation which is falling apart., and that is something virtually any listing agent would do. It’s even possible that could be done without the backup offer form even being used.

    Edit–Re-reading that, it appears that is exactly what is being described. If a backup addendum is not being used, then you’re talking about a deal being negotiated that would be entered into after the first deal has been terminated. Otherwise the seller would be under contract to sell the same piece of property to two people at the same time.

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  26. David Losh

    What’s frustrating to me is that I have been a buyer working with Real Estate agents. I don’t normally do my own transactions because I don’t think it’s the best position to be in, but I end up doing the deals anyway because Real Estate agents can be such butt heads.

    I use the term meaning that a lot of agents just want to butt heads with each other rather than do a deal.

    At one time I was walking around with $100K to buy Real Estate. The agent I chose was a long timer who I am shocked has survived to this day. We wrote an offer on an apartment house in Fremont that was listed for $250K. My offer was contract terms which the seller asked for, $100K down, payments made from the rents of the building for three years before I cashed out. So basically I didn’t get have any control over the funds, all expenses were paid, and the seller got the rents like normal.

    I knew, and had done business with both agents. My offer was ridiculously strong, but the agents just kept butting heads because it wasn’t a “normal” offer.

    The seller was an attorney, and she understood the offer, but the listing agent kept insisting that because of the big down payment I should just cash out the property. I didn’t want to do that.

    My agent didn’t have anything to add, and kept insisting I change my offer.

    Well as it turns out the listing agent did get a back up financed offer, and wanted that offer instead, I don’t know why, because my offer netted his seller more money over the three year period. So my choice was to either match the back up, or move out of the way.

    Well I had a signed around deal, but what the frigging heck did I care about closing with this kind of crap?

    Like I say, agents can help, but a lot of times they just get in the way.

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  27. softwarengineer

    RE: Kary L. Krismer @ 1

    Whoa Kary

    You hit a very sore tooth when you mentioned even the possibility of a bunch of unqualified bidders being the root cause of driving scarce inventory prices up….but ya know, that’s exactly what I saw in the HUD home auctions in the early 90s Recession….hoards of unqualified buyers/bidders driving the price way too high.

    It likely hasn’t changed [in fact its FAR worse now with current TOO BIG TO FALL banks hoarding all their stimulus money] and I’m on your side, you at least have some snap shot data root cause in this pathetically small inventory, which TOTALLY lacks trend analysis ability anyway.

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  28. Kary L. Krismer

    RE: softwarengineer @ 27 – I wasn’t thinking necessarily of unqualified buyers when I mentioned financing falling through. I was thinking more of incompetent loan originators.

    Now that you mention it though there are two things an incompetent loan originator can do: 1. Give some sort of an approval letter to someone who does not qualify for a loan in the amount necessary to purchase the property; or 2. Screw up the processing of a loan or try to fit the client into the wrong type of loan. You’re dealing more with the first, while I was thinking more of the second, but both happen.

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  29. Kary L. Krismer

    By softwarengineer @ 27:

    You hit a very sore tooth when you mentioned even the possibility of a bunch of unqualified bidders being the root cause of driving scarce inventory prices up….but ya know, that’s exactly what I saw in the HUD home auctions in the early 90s Recession….hoards of unqualified buyers/bidders driving the price way too high.

    BTW, unqualified buyers are just part of what other buyers have to deal with. Last year I had a cash buyer make on offer on a property which if it could be financed, could only be financed as a rehab loan. Unfortunately the bank was accepting all types of financed offers, and that drove up the price. Fortunately we were able to convince the bank that an offer $40,000 higher than ours was illusory, but it still impacted what we offered. There was nothing we could do about that if we wanted to get that property.

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  30. ARDELL

    RE: Kary L. Krismer @ 29

    What was the end result? Did your client get it for that $40,000 more? Did your client get it at all?

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  31. ARDELL

    RE: Kary L. Krismer @ 25

    Yes…most backup offers that are successful do not have the formal backup form…they were on the table from the get go. The property does not go back to Active and so the offer on the table is treated as if it DID have a backup addendum…slides through to first position.

    The ONLY positive of doing a backup offer is to prevent the home from going back to Active and to bypass the other original offers and new offers that may form in the interim or by going back to Active status.

    Consequently the successful “backup” scenario, accomplishing the same objective as an official “backup” offer IS successful often…it just doesn’t have the formal backup addendum at the outset or even prior to closing. But the buyer and seller have the same advantage…without the addendum.

    That’s real life…and it does apply…often.

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  32. Kary L. Krismer

    RE: ARDELL @ 30 – We got it for about $40,000 less than the highest offer, but that offer was higher than what we would have done if they had not been opening the bidding to all types of financing. It took a lot of pressing to convince them (a bank) that there was no way that property could be financed with a conventional loan.

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  33. Kary L. Krismer

    By ARDELL @ 31:

    RE: Kary L. Krismer @ 25

    Yes…most backup offers that are successful do not have the formal backup form…they were on the table from the get go. The property does not go back to Active and so the offer on the table is treated as if it DID have a backup addendum…slides through to first position.

    – We’re getting into terminology now, but an offer without a backup addendum is not a backup offer, and clearly not what the reader who contacted Tim was asking about. I would just call that a second or subsequent offer, but it’s not a backup offer.

    But yes, where a pending deal is falling apart and the listing agent calls the agents for the other parties who made offers, if an agreement is reached that second transaction is more likely to close than where a buyer just asks that a failed offer become a backup offer using the backup addendum. That’s because the key to success in both situations is the first transaction failing, and you already have that happening in your scenario.

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  34. Kary L. Krismer

    For those here who do not have access to the statewide forms, Form 38A starts with the following two paragraphs:

    1. Property Already Sold. Seller has previously sold the Property pursuant to a purchase and sale agreement dated _____________ (“First Sale”). Seller reserves the right to change or amend the terms of the First Sale.
    2. Back-Up Agreement Subject to First Sale. This “Back-Up Agreement” is subject to the First Sale. Seller is not obligated to sell to Buyer, unless the First Sale fails to close.

    It then deals with the other issues that can arise, both for when the backup transaction is going to proceed and when it doesn’t. The point is though the contract becomes a binding agreement, subject to the first agreement failing.

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  35. David Losh

    The way I read this the person had already submitted the offer:

    “We just found a home we really like, but they accepted another offer literately hours before ours was submitted.”

    To me it means they then chose to amend the offer to be in back up position.

    I don’t have a real problem with an agent doing that as long as they keep looking, and rescind before making another offer.

    In the heat of this market anything can happen.

    However, if the agent encouraged a back up offer to be submitted, on the same day as the other offer, I would find that much more questionable.

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  36. Kary L. Krismer

    By David Losh @ 35:

    To me it means they then chose to amend the offer to be in back up position.

    . . .

    However, if the agent encouraged a back up offer to be submitted, on the same day as the other offer, I would find that much more questionable.

    That’s how I’m reading it too. They became a backup offer after losing out.

    As to the last part, it would depend a lot on how important that house was to the buyer. There should probably be something more than just being disappointed that they lost out. Something that made that particular house special to them, where it really suited what they wanted to do.

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  37. Jessica

    For me, as a buyer, a backup offer did in fact “just happen,” or at least what has been called a backup offer by both the Listing Agent and my Buyer’s agent. Actually, the whole reason I stumbled across this post today is because I has the exact same question as the original poster here; what are the odds of a backup offer being accepted? (Answer, about what I expected. Pretty low and depends on the first buyer.)

    On Wednesday a new property was listed. My husband and I put in an offer that day. The listing agent replied to my agent that another offer had been submitted and that both would be sent to the bank for consideration (it’s an REO property). Today I received an email that my agent forwarded from the listing agent saying that the bank had reviewed both offers and chosen the other one, but that our offer was placed in the backup position. Listing agent asked my agent to confirm if we wanted to stay there, which we did. No paperwork, no forms.

    Maybe that isn’t an “official” backup offer since no forms were signed. However, I believe it’s safe to say that it’s considered the same thing. I am in Illinois, so I don’t know if things like this vary by state.

    As for the guy badmouthing backup offers – I see no downside to this practice. I can keep looking on my own for a property with no strings (as long as I remember to rescind the original offer if I find something else), while the listing agent has a solid offer waiting in the wings if something falls through with the first. After already being outbid three times, I’d be more than happy to abandon my search and accept this particular home if given the chance.

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  38. ARDELL

    RE: Kary L. Krismer @ 34

    Kary…I know you like to abide by laws and rules. I would love to quote ALL the mls forms to help people understand offers and responses to offers.

    Unfortunately it is against mls rules, and a $5,000 fine, to QUOTE nwmls proprietary documents.

    I know how much you like to call everyone else “incomepetent” and how you herald the day people who break rules are fined. I don’t want to see your name on that “bad people” list you think is so meaningful.

    No quoting of proprietary documents! Maybe The Tim will allow you to delete that and save your hide. :)

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  39. David Losh

    RE: Jessica @ 37

    Well, the best deal one of my buyers got was in a back up position we submitted on a pending sale. The sale had been pending inspection for over 10 days so I called the listing agent to see if I could show the property. No muss, no fuss, no discussion, just showing the property.

    My buyer loved the house, we had it inspected, and there was a note on the inspection of some dry rot in the South East corner.

    The pending offer also noted the dry rot, but called it “settling” and was asking for a geo tech report, and $10K in unspecified repairs.

    Long story short is our offer was lower than the original asking price, but we were ready to close. The offer in first position was given the opportunity to proceed, which they chose not to.

    I never met the listing agent, but my buyer, and the seller bonded over wine, and it was a very amicable closing.

    You just never know.

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  40. Kary L. Krismer

    By Jessica @ 37:

    For me, as a buyer, a backup offer did in fact “just happen,” or at least what has been called a backup offer by both the Listing Agent and my Buyer’s agent. . . .

    On Wednesday a new property was listed. My husband and I put in an offer that day. The listing agent replied to my agent that another offer had been submitted and that both would be sent to the bank for consideration (it’s an REO property). Today I received an email that my agent forwarded from the listing agent saying that the bank had reviewed both offers and chosen the other one, but that our offer was placed in the backup position. Listing agent asked my agent to confirm if we wanted to stay there, which we did. No paperwork, no forms..

    I would call that a backup, even though there’s no backup addendum, but that’s because REO is slightly different. What you describe is common with a number of banks.

    One thing Losh has mentioned a couple of times is to not make an offer on another property while you’re still in a backup position. The reason is you don’t want to be in contract on two properties at the same time, which could happen if you get your new offer accepted and at about the same time the backup offer also sends a notice that the first offer failed. And while each would likely have an inspection contingency, contrary to popular belief, that won’t necessarily let you off the hook, so in theory you might lose an earnest money (or worse).

    REOs though are a slightly different animal, depending on the entity. With many you submit an offer and they accept by sending back to you their addendum, which you then sign to get into contract. So you’re not actually obligated to proceed until you sign their addendum, meaning being in a backup position typically doesn’t have the same risks, even ignoring the fact that you didn’t sign anything to be put into backup.

    And speaking of not signing something, your offer to the bank most likely has some sort of expiration date which has now past. So your offer is technically dead, but most banks ignore that entirely when accepting offers because they do send their own addendum back as part of an acceptance of your offer. That basically becomes a counteroffer, making your offer expiration date irrelevant. If you want to accept you can, if you don’t you don’t have to. The same would be true when the bank puts you into a “backup” position.

    All that said, the above statements are just generalities of the practices of some banks. The above statements are not intended to be legal advice and determining your own position with respect to the bank would require that you hire your own attorney to review the documents you have signed and anything returned by the bank or its agents.

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  41. Kary L. Krismer

    By ARDELL @ 38:

    RE: Kary L. Krismer @ 34

    Kary…I know you like to abide by laws and rules. I would love to quote ALL the mls forms to help people understand offers and responses to offers.

    Unfortunately it is against mls rules, and a $5,000 fine, to QUOTE nwmls proprietary documents. :)

    I presume you’re talking about Rule 61A, which is basically just a notice that the forms are protected by copyright. I purposefully didn’t quote the entire form, but just enough to give people an understanding of what we’re talking about. Doing that clearly comes under the “Fair Use” doctrine. And in any case, what I quoted is useless without the remaining parts of the form which address what happens going forward.

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  42. David Losh

    RE: Kary L. Krismer @ 40

    Well, technically speaking, if you want to be technical, the buyer wants to buy a house, and they don’t care how they get there.

    So, when I say to rescind the offer so you aren’t in contract on two properties it’s because the buyer wants to be free to pursue the best options. Right now these people are developing options.

    That REO offer maybe technically dead, but it may be for a great house. The Loss Mitigator may just stack offers, and pick the best one. That may take a couple of weeks or a month. The Loss Mitigator, in today’s market, doesn’t need to care because they have a hot property.

    So it is worth hanging with the REO for as long as it takes to find a place the buyer really wants.

    The buyer won’t be in contract until the next offer is accepted, and signed all the way around, but once you are in that process, it’s a good idea to rescind the other offer.

    The thing with the REO is you won’t get a signed rescision.

    So your REO offer maybe dead, dead, dead, but the Loss Mitigator may still accept.

    So, yeah, this isn’t legal advice, but it is murky. The buyer should get some legal counsel other than a website.

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  43. Erik

    RE: ray pepper @ 4
    That’s good advice. That makes a lot more sense than offering more money.

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  44. Kary L. Krismer

    By David Losh @ 42:

    The Loss Mitigator, in today’s market, doesn’t need to care because they have a hot property.

    And I’m thankful for that. If the property comes back on the market they might not even think about raising the price to meet what is the current market. If they cared, they would probably raise the price!

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  45. David Losh

    RE: Kary L. Krismer @ 44

    The Loss Mitigator is there to do deals, get rid of inventory, and generate cash.

    They are not there to play games with you, or the market place.

    The buyers are paying top dollar already, so yes, the Loss Mitigator doesn’t need to care.

    The Real Estate market can turn tomorrow, it has happened many times before with less incentive than we have right now, both politically, and economically.

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  46. Kary L. Krismer

    RE: David Losh @ 45 – If a property was originally priced over four months ago, but did not sell due to two failed deals, then the bank does need to look at the price again when it goes back on the market. Prices have been rising locally recently, particularly in the lower range properties that most REO listings reside in. That’s what the bank would do if the people who worked for it gave a crap and actually cared about the money that the bank recovers, but they don’t care.

    HUD is even worse than banks in that regard. They do things over and over and over that keep them from recovering as much money as they should.

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  47. Cathie

    Backup offers sometimes give false hopes but once in awhile they do go through. What percentage of first offers fail, do you think.

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  48. Ray pepper

    If your happy. Then I’m happy for you! Enjoy home ownership!!!

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  49. Everett_Tom

    RE: Ray pepper @ 49 – Except we didn’t get the house..

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  50. Ray pepper

    Well I hope I have better luck then you today at Trustee Sale. But if not. No worries. I assure you this Tom. There is always another. And another. And another. Be patient

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  51. Alice

    Question to all RE pros here:
    we found a $579k house we really like but do not have financing secure at the moment.
    Pre-qual is contigent on higher credit score which will be acomplished in 12 months 9info per the lender we are working with).
    That being said, the house was on the market for 90 days without any offers (we are represented by an agent that kept us informed) and suddenly the status was changed to ‘pending, backup offers’.
    We can not put in a backup offer bc we don’t have financing. BUT we have some free cash.
    Crafty as we are, we sent the seller a written proposal, suggesting a lease-to-buy scenario.
    We offer to lease the property for 12 months, the seller gets to keep all lease revenue.
    In month 13 we agree to buy the property at asking price.
    What are the chances of the pending sale falling through and such an offer as ours being accepted ?
    *addtl info: seller is older, owns the property outright and has already moved elsewhere
    Thanks !

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  52. Blurtman

    RE: Alice @ 52 – Sad to say, but you will have to put out a bit more if you want Jimmy to take you to the prom.

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  53. Alice

    RE: Blurtman @ 53
    ummm who is Jimmy ?
    And what kind of additional info do I need to provide ?

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  54. ARDELL

    RE: Alice @ 52

    The seller should not accept that offer, all things considered. A good lease purchase has a reason for needing to close later, that is not about credit score. There are no guarantees with credit scores and if it is too low to get any kind of mortgage at all right now, the owner should only consider your offer if they would like to rent the place for a year.

    You say the seller “gets to keep” the lease money as if the monthly is a gift vs fair market rent. You should give them the lease money for living there for a year and sweeten the pot with a higher price. The monthly rent to live there is not a “bonus” revenue stream to the seller.

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  55. Alice

    Thanks Ardell !
    We have a house right now and are paying the monthly mortgage.
    My husband is the bread winner, I don’t work. In order to qualify for an additional 500k loan
    we need to bring the score up 100 pts which the lender said usually happens within 1 year.
    All we can do is create them a lease offer that is financially better to them than an outright sale. Therefore we offered a market competitive lease amount of $2.500 monthly that they get to keep. A bonus, if you will, for going with a plan they did not intend to go with in the first place.
    They have yet not answered us, is there hope for consideration you think ?

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  56. Ira Sacharoff

    RE: Alice @ 56
    Seems to me that the chances are very low for your offer to be accepted. Doesn’t seem to me that the seller would regard your offer as better than an outright sale. Why?
    First of all, if they wanted to rent the place out, they’d have it for rent. You mention that they get to “keep” the rent. Isn’t that the case with any home for rent? That they have the house paid off doesn’t make your offer any more competetive. Maybe if you were offering a rent that was far higher than the market rent, that might have an effect. Or as is not that unusual, pay for the option to buy, meaning something like” I’m putting down 10,000 dollars in addition to the rent, and if I choose in a year not to buy, I’ll lose that money”.
    Also, in a year many people expect the inventory of houses for sale to be higher. Since it’ll take that long for your credit to be higher, doesn’t it make sense just to wait? Nothing wrong with buying a house, but why the urgency?

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  57. Alice

    Ira, thanks for laying the options out for me !
    I meant ‘keep the rent money’ in a way that the amount we pay during the leasing phase will not apply toward the purchase price of the home (as it would in a regular lease-to-own deal).
    Sort of an incentive for them to wait one year until we get the loan to actually buy the house.
    Earnest money would be separate. We weren’t going to offer an higher amount than asking price, because the asking price seems a bit enthusiatic on the seller’s part, you know. The home def. is overpriced, but within a range that we can accept. The only info we received regarding the first buyers’ offer is that it is below asking price. Which wuld put us right in the ballpark if the first deal does not go through. I did think though that the fact that the home is paid off gives the seller a little bit of wiggle room, financially, as in being able to wait one year to get their money ?
    I know it was a far reach on our side and we understand chances a low.
    Also, we did not actively look for a home. We came across it by chance and have our hearts set on this property eversince. Before we saw the house we weren’t even considering to move any time soon.
    But like someone else said earlier, it might not just be our dream home – but someone else’s too. It’s a waiting game & I will certainly keep you guys posted. Thanks for your input ! Cheers

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  58. Shirley

    Hi I had a terrible experience I am after a property my estate agent told me that there is an offer on the property they have till Wednesday for final grant. there offer were for 100% BOND. On Wednesday they advice me that there is an Approved in principal for a 90% bond. A put in my offer they signed it in the morning that after noon they advice me that they signed an Adendum to that offer to give them change till the 2 April to give that money in cash they still don’t have grant only AIP. I felt I was misled anything I can do

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