Q: We were fortunate enough receive and additional offer on our property, but we’re already under contract. How do we accept the backup offer without causing problems?
Answer
In Arizona, we have what is called the “Additional Clause Addendum” which includes additional terms to modify the purchase contract slightly in the event someone has a special condition or contingency. In this particular case, in order to accept the backup contract on your home, it needs to be made clear to all parties that it is in fact a backup offer, and not a concurrent accepted contract (in other words, a sticky situation.)
A contingency on a contract is a condition written into the agreement that must be fulfilled in order for the contract to be enforced. For instance, if a buyer says, “We’ll buy your home, but not until ours sells,” or the seller says, “we’ll agree to sell at your price, but only if the bank gives us approval.”
In the backup offer, the contingency is “we’ll accept your purchase price, buyer, but only if the first contract cancels, otherwise, you can cancel your backup at any time until that point.”
Line 9 – 17 of the Additional Clause Addendum make provision for this, and should be included with your purchase contract if you are accepting a backup offer. It reads:
BACK-UP CONTRACT – CONTINGENT UPON CANCELLATION OF PRIOR CONTRACT: Buyer acknowledges that Seller is currently obligated by a prior contract to sell the Premises to another buyer. This is a back-up Contract contingent upon cancellation of the prior contract. Seller retains the right to amend, extend, or modify the prior contract. Upon cancellation of the prior contract, Seller shall promptly deliver written notice to Buyer. Upon Buyer’s receipt of written notice of cancellation of the prior contract, Broker named in Section 8r shall open escrow and Buyer shall deposit any required earnest money. The date of Seller’s written notice to Buyer shall be deemed the date of Contract acceptance for purposes of all applicable Contract time periods. Buyer may cancel this backup Contract any time prior to receipt of Seller’s notice of cancellation of prior contract.
Fully disclosing that the seller has already accepted another buyer’s offer is critical. Having two accepted contracts on one house will get you into hot water. In the clause, Section 8r of the purchase contract is referenced, which is simply where the Buyer’s real estate broker is defined in the purchase contract.
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