BUMP CLAUSE VS BACKUP OFFER
In this competitive market, there are instances in which more than one buyer is competing for a single home. The seller has a couple options here that are sometimes confused, so let’s go over them.
First option is to offer the runners up a backup position. In this scenario, the seller might either get multiple offers, in which case they would likely accept the best offer and go under contract and offer the rest backup positions. If it isn’t a multiple offer situation, they might accept an offer and decide to continue to market and accept backups down the line. Either way, the contract they initially accept cannot be broken unless it falls through for any allowable contingency outlined in the Buy Sell. If it does, however, the seller goes under contract with the backup position #1. If that falls through, on to the next. However, two contracts falling apart isn’t very likely, so many buyers will not want to fill a backup past the second position. Remember: having a backup or two does give the seller an edge as they might not see fit to be as accommodating to the buyer’s asks in the due diligence period. Mind you, health and safety hazards should be addressed, or they become Adverse Material Facts that must be disclosed to all other potential buyers.
Second option, which would not be used in a competitive situation, is to go under contract with a Bump Clause. This option would only be favorable to the seller, and only utilized under certain parameters, such as the buyer having a less than ideal contingency. One such contingency would be that the buyer must sell their current home (A) to qualify for the loan to purchase this new one (B). If the home (A) might potentially hold up the purchase of the new one (B), the seller (of home B) might favor a Bump Clause to expedite the contingency if another buyer comes along without such a contingency. If this were to happen, the current buyer would have a set amount of time (usually 72 hours) to either satisfy the contingency or get bumped out of the contract.
For both options, it is important to note that the Seller would be able and willing to continue marketing and showing their home. As a buyer, you would want to be very diligent and it would behoove you to understand all angles. As always, the more you know the better off you’ll be.
Related: Multiple Counters, Explained