I regularly am in situations where a buyer is interested in some commercial property that is already under contract. It is the exception where I don’t recommend submitting a backup offer. There are two principal advantages to a buyer of submitting a backup offer in an effort to put a backup contract in place. Both are strategic advantages.
“This is the bottom line; win the game.”
~Joe Namath
First, if the current active contract buyer does not close, then a backup contract becomes the active contract, knocking out competitive buyers before they have a chance to get started. The more sought after a property is, the more significantly this benefit is, but it is always a benefit as it only takes one buyer to knock you out of the process.
Second, and I think more powerfully, a backup contract in place increases the likelihood of a property again becoming available as it tends to make a seller less likely to grant consideration or additional due diligence time, if requested. Think about it. Imagine a buyer has been under contract with plenty of time for due diligence. The buyer asks for an extension of due diligence. If the seller only has people saying they’re interested – talk is cheap – then he/she might or might not grant the extension. If a firm backup offer is in hand, that same seller is much less likely to grant the extension.
Allow me to go one better, strategically. A backup buyer that really wants a property can make a hard offer, i.e. an offer with a non-refundable deposit or at least with some portion immediately non-refundable. Why would a buyer do this? A seller in a due diligence period will consider that differently than an offer with a new due diligence period or versus an existing contract with a buyer requesting more due diligence or other contingency time.