Back-Up Contract Q&A

Back Up Contracts Q&A

1. When do the earnest money and option fee have to be paid on a back-up contract?

   1. Hint… look at the first sentence of the Addendum for Back Up Contract.  The earnest money must be deposited with the title company and the option fee must be paid within 3 days after the Effective Date of the back-up contract.

2. Why does the buyer have to pay the option fee when the buyer is in back-up position?

   1. The buyer pays the option fee so that the buyer can terminate while in back-up position, AND after the Amended Effective Date for the number of days stated in paragraph 23. (See paragraph D of the Addendum)

3. Can the back-up Buyer deposit a nominal sum of earnest money with the title company, and then deposit more if and when the back-up Buyer gets into first position?

   1. Yes, and back-up Buyers frequently request this. If the earnest money is $ 10,000, for example, the buyer could initially deposit $1000 and include the following verbiage in Special Provisions: “Buyer shall deposit additional earnest money of $ 9,000 within ____ days after the Amended Effective Date of the Contract.”  

4. When is the Amended Effective Date?

   1. The Amended Effective Date is the date the Seller’s Notice to Buyer of Removal of Contingency Under Addendum for Back-Up Contract (TAR 1913) is sent to Buyer

5. Can the back-up Buyer inspect the property while in back-up position?

   1. No – neither party is required to perform until the back-up buyer goes into first position.