What is a Backup Offer in Real Estate?

In a fast-paced real estate market, a backup offer can be a strategic move for home buyers wanting to secure a property with an accepted conditional offer. This approach positions backup property buyers next in line, ready to proceed if the initial offer falls through. But what does it mean to have a backup offer, and how does this strategy play out specifically in the Victoria real estate market?

Understanding Backup Offers

A backup offer in real estate is a secondary offer made on a property that already has an accepted, conditional primary offer. Should the primary offer fall through due to issues like financing problems or unfulfilled conditions, the backup offer steps in, allowing the backup buyer to move forward with the purchase. This strategy provides an advantage to buyers willing to wait for a specific property, especially in competitive markets with limited listings.

Two Common Scenarios for Real Estate Backup Offers

1. Standard Conditions:
   In typical situations, backup offers are used when the primary offer is subject to common conditions like financing, inspection, or strata document review. In these cases, if the primary offer fails to meet its conditions within what is often a relatively short timeline, the backup offer is activated, allowing the backup buyer to proceed with the transaction smoothly.
2. Conditional on Sale of Another Property:
   A different scenario arises when the primary offer is contingent upon the sale of the buyer’s home. In these situations, a backup offer can be particularly effective. If the primary buyer is unable to sell their property within the specified timeframe—often outlined in a “time clause”—the backup offer can potentially “bump” the primary offer, allowing the backup buyer to take precedence. This makes it a smart strategy for buyers looking to increase their chances of acquiring a property that is already conditional sold.

How Backup Offers Work in BC

In British Columbia, creating a legally binding backup offer involves adding specific clauses to the Contract of Purchase and Sale. A model clause provided by the British Columbia Financial Services Authority (BCFSA) states:

Subject to the Seller ceasing to be obligated in any way under the Contract of Purchase and Sale dated (date) (the “Sale Contract”) respecting the Property, including the Seller obtaining a full release from the Buyer, on or before (date). This condition is for the sole benefit of the Seller.

This clause ensures that the backup offer only becomes active if the initial contract is released—typically due to unmet financing or inspection conditions. However, it can also apply when the primary buyer’s offer is contingent upon selling their home. With this clause in place, all essential terms (such as price) are pre-established, forming a binding contract for the backup buyer should they become the primary buyer.

However, a backup offer requires commitment, and we can help you assess both benefits and potential constraints before proceeding.

Pros and Cons of Backup Offers

Below are some common pros and cons but we are available to discuss your unique situation and whether a back-up offer is a good home buying strategy for  you.

Pros: For high-demand properties, a backup offer secures a buyer’s position without displacing the current primary offer. If the primary offer falls through, the backup buyer’s terms are already set, giving them a competitive advantage over other interested buyers. Probably more significant is the chance to displace a primary offer when it is contingent on the sale of the buyer’s home, making a back-up offer strategy particularly effective in such scenarios.

Cons: A backup offer limits flexibility, as the buyer is legally tied to the property so long as the primary buyer is first in line, which could prevent them from pursuing other listings that become available in the meantime.

Q&A: Backup Offers in the Victoria Real Estate Market

Q: What does it mean to be a backup offer?
A: Broadly speaking, being the backup offer means your contract is next in line if the primary offer collapses. If the primary offer collapses, you can proceed with the purchase under your pre-set terms.

Q: Is it worth putting in a backup offer?
A: This depends on the market, the property’s appeal, and your commitment. For highly desirable, scarce properties, a backup offer can be an effective way to secure a chance at purchase if the primary offer fails. In the case of a primary offer that is subject to the sale of the first buyer’s house, it can be a very effective tool to “bump” that first offer.

Q: How do backup offers work in BC?
A: Backup offers in BC rely on standardized language from the BCFSA to create clear terms and prevent binding seller obligations until the primary contract is void. Custom clauses may be added for unique circumstances, as Licensed real estate professionals we can guide you through this process.

Q: Can a backup offer “bump” a primary offer that is conditional on the sale of the first buyer’s property?
A: Yes, if the primary offer includes a “time clause.” Such a clause allows a backup offer to activate a period (typically 24-72 hours) during which the first buyer must remove all conditions on their purchase. If they are unable to do so, the backup offer becomes the primary offer. As experienced Realtors, we can help you navigate  the nuances involved.

Q: How often are backup offers accepted in the Victoria market?
A: While backup offers aren’t widely used in Victoria outside of “subject to sale” primary offers, they can also be useful in competitive markets. They can succeed when primary offers fall through, often due to financing or inspection issues. Consulting with Victoria Real Estate Pros can offer insights on the likelihood of backup offers succeeding in specific neighbourhoods from Oak Bay to Saanich and Sidney to Victoria.

Disclosure
This article includes information based on standard clauses from the BC Financial Services Authority (BCFSA) and is for informational purposes only, not legal advice. For specific guidance on backup offers, it’s recommended to work closely with a licensed real estate professional to ensure the provisions align with your goals. As a team of licensed real estate professionals, the Victoria Real Estate Pros are available to discuss backup offers and other questions about today’s market.

If you want to know more about backup offers, contact us.