Real Estate Term of the Day: Backup Contract

Real Estate Term of the Day: Backup Contract

BACKUP CONTRACT – a contract to buy real estate that becomes effective if a prior contract fails to be consummated (Barron’s Dictionary of Real Estate Terms)

In a buyer’s market, we don’t see as many backup contracts placed on homes.  There are, however, times when we will see backup contracts come into play more often:

  • Short sale listings – In a buyer’s market this is the most common scenario that a backup contract will occur.  Most short sale listings are priced at a discount and for many buyers it can be rewarding to place a backup contract on a short sale listing.  I have personally helped a buyer close on a home that her offer was initially submitted to the seller as a backup contract
  • Seller’s market – When demand is high and supply is low, backup contracts will be placed on homes
  • Very specific property requirements – If there are only a few homes that meet the buyer’s criteria a backup contract might be considered to ensure they have an opportunity to purchase the home if the current contract falls
  • The home is a GREAT deal!

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