Back-up offers: What you need to know
Your buyer clients have found the perfect home. Unfortunately, when they decide to make an offer, you discover the sellers have already accepted another offer, and they are waiting for subjects to be removed.
Your clients are heartbroken – and determined to do whatever it takes to have their offer considered. But before you consider advising them to submit a backup offer, make sure that:
- you fully understand the risks, limitations, and obligations of back-up offers,
- you carefully inform your clients about the risks back-up offers can present, and
- your clients are prepared to accept those risks.
What exactly is a back-up offer?
A back-up offer is an additional offer that may be accepted by a seller while waiting for a first offer to either become firm or collapse.
If my buyer clients find another property can they withdraw their back up offer?
If your clients wish to withdraw their accepted back-up offer, or if they want to include a term in their back-up offer to allow them to withdraw the offer after acceptance, you should direct them to seek independent legal advice.
If the first contract collapses, their back-up offer on the first property may become firm. This could result in the back-up buyer becoming bound by two contracts; the back-up offer on the first property, and the accepted offer on the second property.
The first buyer has asked for an extension. Will this activate the back-up offer?
Any changes to the original contract should be approached with caution. If there has been a breach of the terms of the contract or a gap in the intention to contract, the back-up offer may be activated.
Licensees acting for the seller and first buyer should advise their clients to obtain independent legal advice before changing the first contract when there is a back-up contract waiting in the wings. The licensee acting for the second buyer should also advise their client to obtain independent legal advice.
If the subject removal date in the original contract is extended, the licensee acting for the second buyer should ensure that the back-up contract is amended to reflect the new date of subject removal in the original contract. The seller must agree to this amendment in writing.
Do back-up offers present risks to sellers?
Yes, there are potential risks for sellers that licensees should be aware of, and advise their clients about. Sellers’ agents must take particular care when accepting back-up offers to ensure that the seller does not risk becoming bound by two contracts. Back-up offers should always have a Back-up Contract Clause written into the contract to avoid the risk of selling the property to both simultaneously.
The date in the back-up offer clause should follow the one stated for subject removal in the original contract. The back-up offer should also include the time of day when the original contract expires.
For more information:
- the Professional Standards Manual, Offers after an Offer Has Been Accepted (Back-up Offers)
- December 2011 Report from Council: Further Accepted Offers After a First Offer Has Been Accepted (Back-up Contracts)