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4 Things Sellers Need to Know about Backup Offers

It’s no secret that most of the country is currently experiencing a strong seller’s market. Yet even in this competitive environment, almost 25% of all escrows fall through before closing. Home inspections, appraisal surprises, and loan approvals are just a few of the issues which can arise, causing the buyer to pull out of the deal.

An essential component of any listing strategy should be a good backup offer, meaning that another buyer is willing to step in and close if escrow falls through. As you consider a backup offer, here are 4 things you need to know:

1. A Backup Offer Is Legally Binding – A backup offer is a fully executed offer, just like the original, so make sure the terms are acceptable. Typically, the buyer will include a contingency in the event they find another home.
2. Multiple Backup Offers – In a strong seller’s market, it is not unusual to accept multiple backup offers. Always clarify the position of each backup offer and whether you will continue to accept backup offers.
3. Leverage – Backup offers provide leverage during the escrow period as well as security for the seller. Use backup offers to discourage unreasonable requests for repairs or concessions during escrow.
4. Earnest Money – Backup offers do require the buyer to submit earnest money, just like the primary offer. This stays in an escrow account. Often this is smaller than a typical deposit with the condition to increase the amount if the offer becomes the primary one.

Backup offers should be an important consideration in any home sale. Not only do they protect the seller if an escrow fails to close, but the buyer can also have another opportunity to close on a home they love.

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What is a Title Search?

It may seem like there are a million steps to the closing process when buying or selling a home. A title search is just one of the many stages and title problems may account for almost 10% of closing delays. As a seller, doing a preliminary title search can help avoid costly delays at the end. So, what is a title search and what does it disclose?

In the simplest form, a title search identifies who owns the property. This may be obvious, but surprisingly, sometimes the party selling the home may not actually have the legal right to do so, at least on paper. For example, in the case of a married couple, the property might be in only one spouse’s name. Another example would be a property held in trust or probate; it could take some paperwork to correct title to allow a sale.

A title search also uncovers any existing liens on the property. This would include any current mortgages and may find old debt or unreleased loans. Items which must be paid off or removed prior to sale. Finally, a title search will list any deed restrictions, such as easements or property restrictions.
If the title search does find any issues, the seller will need to remove them before the closing can occur. Once the sale is closed, title insurance ensures the new owner against any title issues that were not discovered during the search.

No one wants unexpected delays during closing. A seller can help mitigate title issues by running a preliminary title search at the time of listing. This gives them plenty of time to address any outstanding title issues before it costs buyer and seller valuable time in delays.