A seller is under contract to sell his property. The Addendum for Sale of Other Property by Buyer is attached to the contract. A second buyer makes an offer. Should the Addendum for Back-Up Contract be used when negotiating the second offer?

Yes. In this situation, the second offer, once accepted, can be a back-up contract only. According to Paragraph B of the Addendum for Sale of Other Property by Buyer, the seller may not compel the first buyer to waive the contingency or terminate the contract under the addendum until the seller accepts a written offer to sell the property.

The seller may not accept a second offer unless the back-up addendum is part of the second offer. Otherwise, the seller may be obligated to sell to two different buyers, especially if the first buyer waives the contingency.

My client wants to submit a backup offer on a home that already has a contract pending. How do I get the information I need to prepare the backup addendum?

Ask the listing agent for the effective date of the pending contract. This date will go in the first blank. 

Your client’s decision about the length of time he wants to stay in a backup position will determine how you fill in the last blank in the form. Some backup buyers may want to have their contract terminate within days if the first contract doesn’t terminate early, while others may want to retain their backup contract rights until after the last possible date that the pending contract might close. If your client wants his backup contract to last until or beyond the pending contract’s closing date, you can also ask the listing agent to provide the pending contract’s closing date.

Remember to tender the termination-option fee with your buyer’s backup offer if he wants an unrestricted right to terminate his contract and has provided for that in the main part of the contract.

My client wants to submit an offer for a property already under contract using the Addendum for “Back-Up” Contract. How do we determine the contract’s effective date?

The effective date for purposes of depositing earnest money and paying any termination option fee is the date of final acceptance. This is the date that the last party to sign the backup contract communicates acceptance back to the other party or the other party’s agent, if applicable.

If the first contract terminates, the effective date changes to the amended effective date. This is the date the seller notifies the backup buyer that the first contract is terminated and the backup contract becomes the primary contract. All performance obligations under the contract—other than depositing earnest money and paying any termination option fee—use the amended effective date for purposes of performance.

Does the backup buyer need to perform under the contract while in the backup position?

The backup buyer must deposit the earnest money and pay the option fee, if any, to the seller at the time the parties execute the backup contract. No other performance is required unless and until the backup contract becomes the primary contract. These requirements are detailed in Paragraph A of the addendum.

If the seller agrees to extend closing or otherwise changes the first contract, can the backup buyer claim the first contract is terminated?

No. An amendment to the first contract does not terminate the first contract.

If the termination option applies in the backup contract, may the backup buyer terminate when in the backup position?

Yes. If the termination option applies, the backup buyer may terminate at any time when in the backup position. The counting of days for the option period doesn’t begin until the date the backup contract becomes the primary contract, which is the amended effective date.

Can the Addendum for “Back-Up” Contract be used to negotiate a backup contract to another backup contract?

No.

How does a seller notify a backup buyer that the first contract is terminated?

Notice must be in writing. TAR created the Seller’s Notice to Buyer of Removal of Contingency Under Addendum for Back-Up Contract (TAR 1913) form to be used for this purpose.

If the backup contract never moves into the primary position, is the backup buyer refunded the earnest money and option fee?

The earnest money is returned to the backup buyer, but the seller retains the option fee. Remember that the backup buyer retained the right to terminate the backup contract at any time while in the backup position.