Back up offer becoming Primary offer

Question:  I am getting a full price, cash, BACKUP OFFER on a listing. We have completed the due diligence and agreed upon the inspection items on the primary offer. We are waiting for the appraisal to come in. My question is if the buyer counters on the appraisal — just say it doesn’t come in at contract price. CAN THE SELLER’S CANCEL THE EXISTING OFFER AND TAKE THE FULL PRICE, CASH OFFER?

Answer:  The Seller cannot cancel without exposing themselves to possible penalties or litigation.  See section 16.2 of the REPC. Section 8.2 covers Buyers rights should the appraisal not come in at purchase price.  If that occurs, there usually is another negotiation. Buyer would probably either pay the difference in cash, or ask the Seller to pay the difference, or possibly get the Seller to split the difference.  If Seller refuses to participate, then Buyer would have to decide to either pay it themselves and move forward, or they could cancel the agreement. At that point the Seller would be free to Accept the Back up offer as the Primary offer.

Here’s another question:  I have a question about how to handle backup offers. Agent A has a listing that is under contract, and now Agent B has just submitted a backup offer.   Do I need to have the sellers sign both the backup contract page, as well as the original REPC, or do they only need to sign the backup contract addendum?  If they do sign the REPC, how do I indicate that they aren’t “accepting” the contract, but are merely placing it in the first backup position?  

The Secondary back up addendum section 1.1 dictates that this is only a back up offer.  Terms are included explaining how it works.  The Seller will need to sign and accept the full REPC and Addenda including the back up addendum.  This Buyer now becomes in back up position ONLY until or unless notified that the Primary offer has cancelled.  In which case you would send addendum 51 “Sellers notice to Back up Buyer of Termination of Primary offer” to the back up Buyer giving notice that they are now in first position.
There are other articles in Broker Support regarding Back up offers etc.  Feel free to puruse that web site.  Just click on Broker Support.