What Is a Backup Offer?

Malcolm Tatum

A backup offer is a type of bid or offer to purchase that can be considered in the event that a previous bid or offer does not work out as originally planned. The term is used in a number of settings, including the real estate market, the sale of stocks and other securities, and occasionally in the auction process. Each application provides the seller with the ability to still secure a sale even when a primary offer must be abandoned for some reason.

Home sellers might entertain a backup offer in case the primary offer is withdrawn.
Home sellers might entertain a backup offer in case the primary offer is withdrawn.

When it comes to real estate, a backup offer is a bid on residential or commercial property that is not the first choice of the seller, but is still worthy of consideration. In the event that the selected buyer wishes to withdraw from the purchase or is unable to fulfill his or her commitment, the seller can end the negotiations with that buyer and move on to the buyer who has made the backup offer. Doing so makes it possible to recover quickly from the temporary setback created when the primary offer is withdrawn or no longer workable, and to still sell the property with relatively little difficulty.

As it relates to the sale of stocks or other types of securities, a backup offer is an offer to buy that is not quite as attractive as the offer initially accepted by the owner of those securities. At the same time, the pending backup offer request is not objected to outright. Instead, the buyer is informed that there is a prior bid on the table that the seller wishes to explore first, but promises to be in touch if that offer should fail to materialize. The end result is much like the situation with backup offers associated with the sale of properties, in that if the primary deal falls through for any reason the seller can easily move on to that pending secondary offer.

With some auctions, the backup offer is identified as the second highest bid received during the auction period. In the event that the auction winner is unable to complete the purchase at the bidding price offered during the event, the auctioneer and the seller may agree to move on to the bidder who submitted that second highest offer. This approach is often an alternative to arranging a second auction for the same item, a process that can be somewhat time-consuming and expensive. Laws and traditions regarding the auction process vary from one jurisdiction to another, and will impact whether or not there is the option to accept and possibly activate a backup offer when the primary bidder is unable or unwilling to follow through.

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