How the Back-Up Offer Addendum Works in California

The California Association of Realtors Back-Up Offer Addendum (C.A.R. Form BUO) attaches to your purchase agreement and puts you in a secondary position behind an existing contract on the same property. It defines when you move up, when your deposit is due, and when your inspection and loan clocks start running. Two checkboxes on the one-page form do most of the heavy lifting, and getting them wrong is how back-up buyers lose money on a house they never bought.

What the Form Does and How You Move Up

The current BUO form (revised December 2021) is one page with six numbered provisions.¹ It opens by setting your back-up position number. Position one means you’re next in line if the current deal cancels. Position two means another back-up buyer moves ahead of you first.

Your entire agreement is contingent on two specific events: written cancellation of the prior contract and a mutual release between the seller and the original buyer.¹ A one-sided cancellation notice is not enough. Both parties to the first deal have to sign off.

The trigger to move you into primary position is equally specific: the seller must deliver copies of those signed cancellations and releases to you. There is no separate “notice to move into primary” document. The signed cancellation paperwork itself is your proof.¹

The form has a cancellation date blank. If the seller cannot produce the signed cancellations by the date you write in, either side can cancel the back-up agreement in writing.² A tight date protects you. An open-ended one mostly protects the seller, who can keep you on the hook while the first buyer tries to work through problems.

The Two Checkboxes That Decide Your Risk

The most consequential decisions on the form are when your money moves and when your deadlines start. The form offers two options for each, and they do not have to match.

For your earnest money deposit, the default delays delivery to escrow until three business days after the seller gives you the signed cancellations and releases. Check the alternative box and the deposit is due immediately under the terms of your purchase agreement, even though you are still in back-up position.²

Contingency timing works the same way. The default starts every time period (inspection, loan, appraisal, disclosure review) on the day after you receive the signed cancellations. Check the alternative box and all those clocks start running per your original purchase agreement, from the day of mutual acceptance.²

Choosing immediate contingency timing means paying for inspections and an appraisal on a property the first buyer still controls. More dangerously, your contingency periods can expire while you are still sitting in back-up position. If that happens and you later move into primary, you arrive as the buyer of record with no contingencies and your deposit at stake. This is the single biggest trap in the form. Most buyers choose the delayed option for both unless there is a specific strategic reason to show the seller you are ready to close faster than anyone else.

One related detail catches people out at the back end of the deal. If your purchase agreement sets closing on a specific calendar date rather than a number of days after acceptance, that date does not automatically shift when you move into primary position. You can be bound to a calendar closing date even if you only became the primary buyer a week before it, unless both sides agree in writing to extend.¹ Writing closing as “X days after moving into primary position” avoids the problem.

Canceling While You Wait

You can walk away from a back-up agreement at any time before the seller delivers the signed cancellations and releases. The form gives you an unconditional right to cancel in writing during that window.² No reason required, no seller permission needed. A written cancellation delivered to the seller or the seller’s agent is enough.

That unconditional right ends the moment the seller delivers the signed cancellations to you. From then on, you are the primary buyer and bound by the standard contingency removal mechanics in your purchase agreement. If your contingencies are still live, you can still cancel through them. If you chose immediate timing and they have already expired, your exit options narrow sharply.

Getting Your Deposit Back

If you cancel while in back-up position and used the delayed deposit option, this is a non-issue. Your money never left your account.

If you chose immediate deposit, or if a dispute arises after you move into primary, California escrow rules take over. Both buyer and seller must agree in writing on the disposition of escrow funds before the escrow holder can release anything.³ Either party can send escrow a written demand for release, which escrow forwards to the other side. If no objection comes within 10 days, escrow releases the funds.

When the parties cannot agree, the escrow holder can file an interpleader action and let a judge decide.³ California Civil Code Section 1057.3 adds some pressure: a party who refuses to sign a release of escrow funds without a good-faith dispute can be hit with a civil penalty of up to $1,000 plus attorney’s fees. The rule exists to stop either side from holding a deposit hostage out of spite.

Liquidated Damages If You Default After Moving Up

If your purchase agreement includes a liquidated damages clause and you default after moving into primary, the seller can retain your deposit. California Civil Code Section 1675 sets the limits: a deposit at or below 3 percent of the purchase price is presumed reasonable, and the seller keeps it unless you prove otherwise. A deposit above 3 percent is presumed unreasonable, and the seller has to justify holding it.⁴

Your actual exposure depends on which timing boxes you checked. With delayed contingencies, default is nearly impossible before you move into primary, because you have no live obligations to breach. With immediate contingencies that lapsed during the back-up period, you can move into primary already in default. That is the scenario the delayed option is designed to prevent.

Financing While You Wait

Time spent in back-up position creates real exposure on the loan side. Mortgage rate locks typically run 30, 45, or 60 days.⁵ If the first buyer’s deal drags, your lock can expire before you ever become the primary buyer. Extensions generally run 0.125 to 0.375 percent of the loan amount per 15-day period. On a $400,000 loan, that is $500 to $1,500 per extension, spent on a transaction that may never close.

Pre-approval letters usually last 60 to 90 days. Outlast that window and you reapply, which means updated financial documents and a new credit inquiry. A job change, new debt, or a credit score dip during the wait can change your terms or disqualify you.

FHA borrowers face an additional appraisal issue. FHA appraisals are valid for 180 days from the effective date. An appraisal update can extend validity to one year, but only if the update is done before the original appraisal expires, the property has not declined in value, and an FHA-rostered appraiser performs it.⁶ Order an appraisal early on an immediate-timing back-up and you may end up paying for a second one.

Before signing a BUO, talk to your lender about the expected timeline and the cost of keeping your financing current. Some buyers choose not to lock a rate until they are closer to primary position, accepting rate risk in exchange for avoiding extension fees on a deal that may evaporate.

Disclosures When You Move Into Primary

Once you become the primary buyer, you are entitled to the same seller disclosures any California buyer receives, including the Transfer Disclosure Statement under Civil Code Section 1102, Natural Hazard Disclosures, and (for pre-1978 homes) federal lead-based paint disclosures.⁷⁸ If you chose delayed timing, your review period for all of this starts fresh when you move up. If you chose immediate timing, that window may already be partly or fully gone.

1
California Association of REALTORS. Back-Up Offer Addendum (C.A.R. Form BUO, Revised 12/21)
2
California Association of REALTORS. Back-Up Offer Addendum (C.A.R. Form BUO)
3
California Department of Real Estate. Surviving the Real Estate Escrow Process in California
4
California Legislative Information. California Civil Code 1675
5
Consumer Financial Protection Bureau. What Is a Lock-In or a Rate Lock on a Mortgage?
6
U.S. Department of Housing and Urban Development. Revised Appraisal Validity Periods
7
California Legislative Information. California Civil Code 1102-1102.18
8
eCFR. 24 CFR Part 35 Subpart A – Disclosure of Known Lead-Based Paint Hazards Upon Sale or Lease of Residential Property