In real estate, a backup offer is often made on homes already under negotiation. One can make a backup offer in case someone else beats them to the home they’ve been eyeing. Once the real estate backup offers are received, the seller picks the one that’s best.

However, since offers sometimes fail to morph into an actual sale, it’s good practice to have a backup offer on the wings. Among reasons a sale may fall through include financing issues, problems with home inspections, family disagreements, employment, misunderstandings, and school preferences.

Should the first offer fail to materialize, a buyer who has submitted a backup offer stands a better chance of getting the property. If you’re a seller, this means you don’t have to incur more costs to re-advertise your home. As a buyer, you get to buy the house you really love if the first offer falls through, but the strategy does come with some risks.

Below are eight merits and demerits of making a real estate backup offer. Some of these could be either pros or cons of making a real estate backup offer, depending on which side of the transaction you fall under.

1. Seller has no need to re-advertise the real estate property

With a backup offer, a seller is guaranteed another buyer should the first offer come apart, which they’ll love since they won’t have to market their property all over again. Without a backup offer, momentum is lost should the primary offer fail. The seller may have to start the search for a new buyer, which entails re-marketing commitments.

It also means the tedious process of taking clients to view the property will have to start all over again. With a backup offer, the seller doesn’t have to re-market the property.

2. Buyer limits your freedom to make an offer on other properties

If you have made a real estate backup offer, your only hope is that the accepted offer will fall through. While this may be good since it puts you in front of the line should the first offer fail, it also means you can’t place an offer on another home as long as the backup offer is in force.

If you do, you might end up committing to buy multiple properties should the primary offers fall apart.

3. Removes competition on a real estate property

Once a seller accepts your backup offer, they can’t offer the property to anyone else should the initial offer fail to come through. Since they can’t remarket the property, there’s no competition for you. Irrespective of changes in the real estate marketplace, if you are the next in line, you are, well, the next in line.

4. You lock the price

An accepted backup offer means the seller has accepted your offer should the one ahead of you fail. It also means you will purchase the property at the locked price, irrespective of changes in the marketplace. Granted, a backup offer doesn’t guarantee you the property, but at least you stand a chance of securing it at an agreed price should the current offer come apart.

5. There could be problems with the home

While a backup offer means you will be next in line if the first buyer backtracks, it also means there could be a problem with the home. Among issues that would make an initial buyer retract their offer could be a failed inspection.

In most cases, your offer for a home is based on its appraised value. However, if the mortgage value of the house is reviewed downwards, you may be required to make a huge down payment. This could be the reason the first buyer backed off in the first place. A home with multiple retracted offers is a red flag.

6. Could lower your chances of getting the property

If there’s a backup offer on one of the Calgary homes that you’re eyeing, the primary buyer knows about it. If they are keen to purchase the house, they will move to protect their interests and lock the secondary buyer out. This can be a nightmare for you.

On one hand, it’s almost obvious the first buyer is not about to retract their offer. On the other, you can’t afford to have multiple backup offers on the table. This may mean pausing your property search efforts until the primary buyer concludes the sale.

7. Multiple backup offers are risky

Sometimes you may be tempted to put more than one backup offer for homes in a neighbourhood you like. This is great since it improves your chances of securing a home in that neighbourhood. However, should the primary contracts of the homes you have backup offers on fall through, you might end up committing to buy more than one house. Wiggling your way out of this scenario could cost you a pretty penny.

To safeguard your interests, consider negotiating a clause in the contract that allows you to back out of a backup offer should you find an alternative property.

8. Backup offers are legally binding

A backup offer becomes active once the primary offer falls through. Like any initial offer, once a backup offer has been signed, it becomes a legally enforceable contract.

Backup offers can be great for both the seller and the second buyer. However, they also come with potential pitfalls.