Some buyers may not know what happens after signing a backup contract on a property. The Addendum for "Back-Up" Contract (TXR 1909, TREC 11-7) explains how and when important actions take place.
Buyers must pay the earnest money and any option fee within three days after the backup contract’s effective date, just like a primary contract. The effective date of the backup contract is the date of final acceptance. This is the date that the last party to sign the backup contract communicates acceptance back to the other party or the other party’s agent, if applicable.
The backup contract is contingent on the termination of the primary contract. The parties have no further performance obligations until the primary contract terminates.
If the primary contract does not terminate by the date inserted in Section B of the addendum, the backup contract terminates and the buyers will receive a refund of the earnest money but not the option fee.
If the primary contract terminates before the date chosen in Section B, the sellers must notify the backup buyers in writing that the primary contract has been terminated. Sellers may use the Seller’s Notice to Buyer of Removal of Contingency Under Addendum for Back-Up Contract (TXR 1913) to make this notification.
The day the backup buyers receive the notice of the termination of the primary contract is the amended effective date. The time for performing all contractual obligations such as delivering the title commitment, surveys, and HOA documents will be tied to the amended effective date.
If the buyers paid for an option period, they may terminate the backup contract at any time while they are in the backup position. If the backup contract becomes the primary contract, the amended effective date becomes day zero of the option period, the following day is day one, and the buyers retain the unrestricted right to terminate until their option period expires.
Well stated.
Awesome explanation! Thank you!
Very well said!
Thank you. Based on this clarification, I presume that there can only be 1 back up contract.
I just don’t like that buyer’s in backup lose their Option Money if the primary contract does not terminate. The seller loses nothing in this case, unlike when a buyer has an Option Period as a Primary or Sole contract.
Agree. No reason back-up buyers should forfeit option fee.
Do a $10 Option Period with additional monies after primary terminates, same with Earnest Money. Don’t want to tie their cash up at the title company. All in writing in the contract, of course.
I agree, the backup contract should get all money returned. The seller is out of nothing, when the first contract goes through. This maybe why most people won’t don’t a backup contract. I advise my clients not to.
When the primary contract is amended to go past the date in Section B of the Addendum for Back up Contract and the backup buyer and seller want to extend the date in B to the date of closing of the primary contract or beyond, is an amendment to the contract the appropriate way to extend the date in Section B?
Sorry, but where in the backup addendum is this clarified? (you took 5 paragraphs). For buyers who want to read and understand the document they are signing, the only reference to option money is in the purchase contract which isn’t effective unless the primary contract terminates. If the option money is also used for the right to hold the backup position, it should clarify it specifically.
Excellent explanation.
Can you change the amount of the earnest money on the “One To Four Residential Contract” and resubmit the entire contract with the “Addendum For Back Up Contract”? We do not want the back up buyers to have their funds held up during this process if possible.
How can a seller keep the option fee if the back up never goes into an option period? I second, thrid and forth that the buyer for the Back-Up offer should receive their full Option Fee back they didn’t go into the primary position.