(I get a lot of questions about this topic, and there is a lot to explain! So grab a cup of tea or whatever you like, take a comfy seat and dive in… this is a long one!)

It’s always a blow to a buyer when a house that they love went under contract and they didn’t get it. Perhaps they either missed going to see it entirely (one day on the market) or their offer was not the one chosen. In a super competitive seller’s market, it is harder and harder for buyers to win bids during a multiple offers situation. The offers that are made are beginning to seem absurd and can leave a buyer bewildered when theirs is not the highest one chosen. And let me tell you that Covid times are just making this market crazier. This is why you need a good agent by your side, guiding you every step of the way.

Let’s explore why a property may come back on the market. Did you know that buyers in North Carolina can pull out of a contract for any reason or no reason at all? Yup… it’s true. (Keep in mind that this brings financial ramifications for the buyer, however.) It isn’t often, but from time to time, you will see a house come back on the market. Sometimes the seller will even reveal a potential reason that this has happened – buyer financing fell through, buyer lost their job, buyer changed their mind, etc. Whatever the reason, a smart seller’s agent will reach out to all the buyer’s agents that showed the house to determine if any buyers may still be interested in the property. And then the crazy bidding starts all over again.

There is a way to avoid this chaos from happening. A seller’s agent can initially notify all the buyers that back-up contracts will be entertained. This allows the seller to have another buyer next in line just in case the first buyer pulls out. The seller and buyer will still negotiate the terms of the contract, just like they would if this was the primary winning offer. Here are some examples of terms that are negotiated: offer price, due diligence fee*, earnest money*, due diligence date and closing date. There are many more terms that can come into negotiations, but those are the most common.

Once a buyer is officially chosen as the second in line and the Back-Up Contract Addendum is signed, a buyer is only expected to give the earnest money deposit to the escrow agent (typically the closing attorney) within three days of signing. The buyer is not expected to provide the due diligence fee unless their contract becomes the primary contract. Just to reiterate, only the one deposit is required and held by the escrow agent – no other money needs to be given. The escrow agent will return the earnest money deposit if the back-up offer buyer chooses to terminate the contract, if the primary contract closes or if the back-up contract expires.

So let’s explore the a few different roads that a back-up contract can take.

Scenario #1: the primary contract closes. This means that the back-up contract becomes null and void. The escrow agent will return the earnest money deposit to the buyer. End of story.

Scenario #2: the back-up buyer places an expiration date on the back-up contract. If the expiration date is any sooner than the primary contract’s closing date, the back-up contract becomes null and void on the expiration date. The escrow agent will return the earnest money deposit to the buyer.

Scenario #3: the back-up buyer decides that they would like to terminate the back-up contract because they have found a different property to purchase. They must give written notice to the seller of their intent to terminate. The escrow agent will return the earnest money deposit to the buyer.

Scenario #4: the primary contract terminates. The seller must provide the back-up buyer with written notice that the primary contract has terminated and that this contract is now the primary contract. Once this happens, the buyer is fully under contract with the seller and the due diligence fee must be delivered to the seller within two days. Congratulations to the buyer and seller!

As you can see, this can tie a buyer and a portion of their money up for some time. If the buyer really loves the house, then they are typically ok with taking this chance in order to potentially get the house of their dreams. It also guarantees that the seller will immediately be under contract with another buyer after the first terminates. As a seller, they don’t have to go back on the market and wait for offers to come in again – no lag time. It’s a win-win for everyone!

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If you are interested in finding out how I can assist you with your real estate needs, click this Calendly Link to book time for us to chat.

Relocating to the Cary area? Click here for the Cary Relocation Guide.

Thinking of selling your home? Click here for the Seller’s Guide.

Learn More:

• Click here to learn more about the Due Diligence Fee.
• Click here to learn more about the Earnest Money Deposit.
• Click here to learn more about the benefits of having a buyer’s agent.
• Click here to learn more about the benefits of having a seller’s agent.

Happy Home Buying & Selling In North Carolina!