A backup contract in a real estate transaction is a secondary contract on the purchase of a property that cannot become a primary contract unless the primary contract becomes null and void, either because of the buyer's inability to execute the deal (because of finance issues, problems arising from a property inspection or personal contingencies) or by choice.
One Contract at a Time
A backup contract is an unaccepted offer. Because the seller has accepted the primary contract, he cannot accept a backup contract unless the primary contract is dead. At that point, he would be free to accept the best backup offer.
A backup contract is beneficial to a seller because it increases the chances that the sale of her property will be completed and closed. Backup contracts are common in areas of high desirability, such as in-town locations, country clubs or areas where there are more buyers than sellers.
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There's no risk to the buyer in the primary contract if he executes his obligations properly. The closing will be completed regardless of the existence of a backup offer.
A backup contract can be valuable to the seller if the primary contract was taken on a "contingency," which is when a contract is contingent on the sale of the buyer's current home. The seller might agree to accept the offer with a "kickout clause," which would require the buyer to remove the contingency in a specified amount of time should an acceptable backup contract be offered.
If a property inspection turns up problems that were unknown to the seller and there is a backup contract, the seller might use the backup contract to present a "take it as is or the secondary offer wins" argument to induce the buyer in the primary contract to go ahead with the transaction.