BIC TIP #1308: The Backup Offer

ByStephen Long
Watch Stephen Long explain why buyers should use backup offers and how earnest money and due diligence work with them.

Your buyer lost out on the house they loved. Game over? Not necessarily. Stephen Long, your Notorious BIC, calls the backup offer addendum one of the most underutilized tools in real estate, especially for buyers chasing limited inventory. And many brokers are not handling the money side of it correctly.

Get in Line, Get a Shot

Contracts fall through, and these days there is plenty of fall-through to go around. A backup offer puts your buyer in position to get the first opportunity should the primary contract fail.

In a tight market, that can be the difference between a buyer who keeps searching and a buyer who gets the house. It is an excellent tool to keep in your playbook, and it costs very little to try.

Earnest Money Still Goes to Escrow

Here is where brokers sometimes trip up. Even on a backup offer, the earnest money check is still written to the escrow agent and held in escrow. A backup position does not mean the buyer can hold off on the deposit.

Make sure your buyer understands that they will need to make that earnest money deposit as part of the backup offer, and that it will sit in escrow while they wait in line.

Due Diligence Waits Its Turn

The due diligence fee works differently. According to Stephen, the due diligence fee does not become due until the primary contract is terminated and the backup moves into first position.

So the buyer is not paying due diligence money for a house they may never get, but their earnest money is committed and in escrow. Explain that distinction clearly before your buyer signs, so there are no surprises about what money moves when.

The Practical Takeaway

When your buyer misses out on a property they love, suggest a backup offer using the backup offer addendum. Make sure the earnest money is delivered to the escrow agent, and explain that the due diligence fee waits until the primary contract terminates. Put in that backup offer, and your buyer just might get the property they want.

This BIC Tip is general real estate education for licensees and consumers, not legal, tax, or financial advice. Rules and forms change, so verify current NCREC rules, MLS rules, and standard forms, and consult a North Carolina attorney or qualified professional about your specific situation. See Disclaimers & Disclosures.

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