I am a big believer in Backup offers. Yes it is true that most sales will close- but not all of them do, and why miss out on a property when you could have written a backup offer and had a second chance?
When you are searching for property in the MLS it is common to come across listings with the listing status “looking for backup”. Both Pending and Looking for backup denote that the subject property has an accepted offer. Even though the property has an accepted offer, it may still fall out of escrow. A property isn’t sold, until it’s sold.
Typical escrow period for residential transactions range from 30 to 45 days, and the default inspection contingency period is 17 days. Sometimes during due diligence a buyer will have a major personal issue come up that will make them cancel. Examples of this would be job loss, family emergency, or a serious health issue- whatever the reason, not everything in life goes according to plan.
Another thing that can happen, is that while the buyer is in escrow they may make an excessive demands for repairs or credit from the seller. If the Listing agent has a strong backup offer in hand they will have confidence that they can cancel the current escrow with the non performing buyer and move to the backup offer if that buyer seems more reasonable.
A lot of buyers are concerned that if they get a backup offer accepted that they will be stuck waiting until the property closes before they can write offers on other properties. That’s not true. You can withdraw your backup offer at anytime. Many buyers keep looking while they have a backup offer on a property.
Backup offers are handled two ways in the Los Angeles market- informally and formally. It really depends on the listing agent. Some listing agents will change the status of a listing to pending, but if you ask them, they will accept backup. Some listing agents once they have a property in escrow, stop working completely and won’t even return your call. It is a very good sign when the status of the listing is “Looking for Backup”, because you know right away that the listing agent is willing to work with backup offers and probably will continue showing the property.
Informal Backup offer– this happens commonly in multiple offer situations, when you have already submitted an offer on the property to the seller and they selected a different offer to accept. They keep your offer on file. The listing agent will tell you verbally that if the escrow looks like it is going to fall out that they will contact you.
Formal Backup offer- If you like to cross your T’s and dot your I’s- I recommend making sure that you get your first backup position in writing. This is done with the Back-up Offer Addendum
Have the seller sign it and then you will have formal backup position #1.