Increase our Offer for a Backup Offer?

6 Replies

Hi BP,

Here's a situation for ya...

We offered 470k for a house that was listed at $440k and we lost (welcome to the Denver RE market). The winning offer was 480k so we lost by 10k. The seller's agent told us we came in second place and that we would be their first call if the first offer fell through.

So our question is, should we submit a backup offer at 480k for the agent to keep on their desk if the other buyers back out? There are a handful of arguments to leave it the same 470 or increase to 480:

Stay at 470:

If the first offer drops then that technically makes us the highest bidder at 470k.

Who wants to spend 10k if they don't have to?

That is still 30k over asking!

Increase to 480:

Property would cashflow on day 1 which is rare in denver. So it's worth the extra 10k.

If the other buyer tries to negotiate price down the seller could let them walk if they have another equal offer of 480 on the table.

An extra 10k over 30 years is only about $45 per month against your cashflow.

I'm stuck on this and could use some input, thanks!

If you let the numbers decide:

Cashflow from 470 offer: +$75/mo

Cashflow from 480 offer: +$30/mo

...They're barely different

I personally wouldn't. If I was the listing agent, I'd be using your $480k contract to strong arm the 1st position buyer. That's harder to do if the backup is $470k. You should really lean on your agent and his/her broker with this. Hopefully he is experienced enough to know what to do.  

What's the difference between $440k and $480k... That's the number I'd be concerned with. 

It will be interesting to see how the appraisals come out this week as the Jan 1st+ contracts start to hit their appraisal deadlines. 

Remember, there is always another house. Keep hustling! 

Agreed with @Matt M. -- There are many agents out there that will do this, in hopes to get that same highest offer that already won. I mean, if they've already told you you're in second place...why change your offer?

My go-to mindset is always "everything happens for a reason". It's hard not to get attached to properties we lose out on, especially if the numbers work well. Perhaps there is a deal waiting for you that cashflows even better than the one we're talking about. 

This market is insane, but stay at it! You'll get something good out there :)

@Matt M. and @Grace Wang

I appreciate the feedback! So I’ll raise the stakes a bit. Our current lease runs through May and this seller is wanting a lease back for 2 months. So that’s a couple guaranteed rent checks with no effort. It allows time for rehab planning, pricing, and scheduling. Along with marketing time for our future roommates (after we close of course).

Does that change your recommendation at all?

Originally posted by @Justin O'Malley :

@Matt M. and @Grace Wang

Does that change your recommendation at all?

Nope. My recommendation is still to speak with your agent. You can escalate to his broker if he doesn't know. That is what you are paying him for!

 

I agree completely with @Matt M. and @Grace Wang . If you are second, why would you up your offer as a backup? You are just a backup. In my market, a lot of backups end up with the property, but you just have to keep checking in without dealing your cards too early. If the deal fails and it's a hot deal and they might put it back to get multiples again, then you pull out the extra 10, but not now.

@Justin O'Malley

I hate backup offers. I've had exactly one that paid off in the last five years. Most listing agents in Denver use them as leverage to keep the first buyer in. Ex: Inspection happens, buyer asks for big items, seller says "You know we have a backup offer. We're not doing anything." Buyer pulls back on his request, the deal closes, and you get nothing.

Agreed with the others above about the price as well. No need to meet the first offer, if you're second. And most importantly: Talk to your agent. They should be communicating with the other side and should have the most information to guide you.