Fact Pattern: You are the listing agent. You receive 4 offers, all written on C.A.R.’s standard-form Residential Purchase Agreement (RPA). The seller wants to accept one offer and put another one in backup position.

Multiple Choice Question: What form(s) should you use for the backup contract? Pick the best answer:

A. RPA only. In paragraph 32, where it says, “Seller’s Acceptance is Subject to Attached Counter Offer,” strike out “Attached Counter Offer” and insert “Cancellation of Buyer in First Position.”
B. RPA and Seller Counter Offer (SCO) stating that “Buyer is in backup #1 position.”
C. RPA, SCO, and C.A.R.’s Backup Offer Addendum (BUO).
D. Any of the above. 

Answer: Answer A is not the best answer. It is legal but ill-advised for a seller to cross out the boilerplate language in the RPA and insert “subject to cancellation” in the manner described. The buyer could even countersign that revision on the RPA by squeezing in a signature and date below the seller’s signature to create an arguably valid contract with a meeting of the minds. However, saying nothing more than “subject to cancellation of buyer in first position” leaves many things up in the air. The long list of possible issues include: What exactly will be considered a “cancellation” — does it have to be in writing or can it be verbal? Is the seller’s or buyer’s unilateral cancellation enough or does it have to be by mutual consent? Can the backup buyer cancel while in backup position? When do the timeframes begin for submitting a deposit, doing inspections, and closing escrow — at acceptance or upon cancellation of the first buyer? And most importantly from a liability standpoint, what are the backup buyer’s rights to assert that the contract with the first buyer has been or should be cancelled?

Answer B is a better answer than Answer A only to the limited extent that there is at least a timeframe and signature line for the buyer to countersign. Back in the old days, Answers A and B were common ways that real estate agents handled backup buyers, because C.A.R. had not yet created a standard-form Backup Offer Addendum (BUO). However, disputes would often arise because of the lack of pertinent terms and conditions.

Answer C is the correct answer. To create a contract with a backup buyer, the seller should use a Seller Counter Offer, and check the box in paragraph 1D of the SCO to incorporate the Backup Offer Addendum (BUO). The BUO addresses all the pertinent issues listed above.

Answer D is wrong. Although Answers A and B are possible approaches, Answer C is vastly superior to either A or B.

-Thank you to Rick LeMasters (Pasadena Office) for suggesting this week’s legal tip.

Copyright© 2020 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of November 30, 2020. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.