By Justin Eslick
Buyer's Agent and Town Planner
What do you do when you are just pipped to the post when trying to buy a property? It happens very regularly, especially in hot markets. And Murphy’s Law also suggests that the property that you have just placed an offer on that has been on the market for four months without any interest now has multiple offers and again you get pipped. It is enough to drive you crazy! But don’t despair – be active and get a backup in place!
Backup contracts are contracts used in instances where someone else has put a property under contract that you have just missed out on. Rather than walk away altogether, you should put in place a backup contract. It is preferable that you have a clause stating that should the first contract fall over, then your contract automatically becomes effective.
Rob Balanda, author of ‘Clauses Made Simple’ (and also appearing at the Reno King’s ‘Property to the Max’), can show you how to use this clause, but here, I want to demonstrate the power of it and why you should use it.
The two scenarios above, the one where you miss out in a hot market and the one where you miss out on a property that has been on the market for quite some time, is what I will use to demonstrate the value of this form of contract.
In a hot market time is of the essence and often properties are sold within days, if not hours and often to uneducated or uninformed people. These people do their research after they have the property under contract. Not a bad tactic and one we would recommend, although you should always ensure you can get out of the contract if need be and always go in with an intention of buying... word does spread if you are someone who regularly terminates contracts.
Because of the minimal research carried out, there is a reasonable chance the property could fall over. Don’t make the same mistake a second time. Be that person who has a backup contract in place in case the property does crash.
It is a similar scenario with properties that have been on the market for a long time except the psychology is different. Rather than not doing any research the buyer tends to do a lot of research before moving forward, but no matter how much research they do, there will always be a little voice asking them over and over ‘why has this not sold?’. Cold feet can be the end result and you, the person with the backup contract can be the winner.
Some people, rather than put in place a backup contract, just say ‘I’ll keep in contact with the agent and ensure I get in first when it does crash’. Bad move. You often won’t be the first to hear about the contract falling over and you might not get the offer into the agent in time. Don’t forget that the agent will have continued advertising the property and taking enquiries after the paperwork has been signed up and you never know what could result from this. Someone may have said that if it falls over they would be prepared to pay an additional $10k, or worse yet, they might put in a backup contract themselves!
There is another good reason why you should consider a backup contract. If the first offer is looking shaky and the buyer asks for any extensions, the vendor is less likely to grant them because they know there is a backup in place. You might be one of those people who say they will just get their offer in when it falls over, but the vendor won’t know that so they won’t know whether it is safe to refuse any extensions for the first contract!
Here is one last good reason for the backup contract. It shows you are keen and willing to put pen to paper, which could work in your favour with the agent. They now know how serious you are and may bring properties to you first... at least for a little while.
Winning properties with backup contracts is not as rare as it may seem. Investigate Property have employed this strategy on a number of occasions and been successful a number of times. Just this month we were successful after the first contract fell over... the vendor refused an extension to finance with the first contract... because he knew he had a backup! Now my client is in the process of buying a 4 bedroom (was advertised as 3 bedrooms) home in a very popular suburb at a fantastic price.
To find out more about how Investigate Property can help you click here.
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