How Many Short Sale Offers Can a Seller Accept?

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Question: How Many Short Sale Offers Can a Seller Accept?

A reader asks: "We finally found the perfect house in a neighborhood we like, but the listing agent says the house is already sold. When we talked to our buyer's agent, she says the seller accepted an offer but the bank has not approved it yet. We would like to make a higher offer. Can the seller accept our offer if the seller has already accepted an offer? How many short sale offers can a seller accept?"

Answer: It sounds like the short sale you want to buy is in what's commonly referred to as active short contingent status. The terms for a short sale in which the seller has accepted an offer but the bank has yet to approve varies around the country, but basically, unless the contract verbiage states otherwise, a seller can agree to sell to only one set of buyers.

This doesn't mean that the seller can't accept more offers, but those other offers probably will not be in first position. A subsequent offer accepted by a seller is known as a back-up offer. A seller can generally sign many back-up offers and place them in any order agreeable to the parties involved.

Getting a Seller to Accept More Than One Short Sale Offer

You have nothing to lose by submitting an offer on an active short sale contingent listing. That's because some buyers write many offers on other homes, even though that practice is frowned upon by lawyers and may result in legal ramifications. When another offer gets accepted for these types of buyers, the buyers then withdraw their outstanding contingent offers.

If the first buyer walks away, the agent will then generally notify the buyer's agent whose buyer is in back-up position. But it doesn't mean a buyer in this position will necessarily be any closer to short sale approval. Many banks make sellers start over when a new buyer enters the process.

A seller is not obligated to accept a back-up offer for a short sale. If the seller is unwilling to accept a back-up offer, you cannot force the seller to sign yours.

Can a Seller Send a Second Short Sale Offer to the Bank?

Some short sale listing agents advise their sellers to send only one short sale offer at a time to the bank. But what happens if the seller receives a higher offer, like the offer you propose to submit?

To answer this, you must read the purchase contract, specifically the short sale addendum. In California, for example, our C.A.R. short sale addendums allow the seller by default to continue marketing the property and to send competing offers to the bank. While the seller probably cannot force the first buyer to cancel the contract, there are ways to put pressure on the buyer to cancel.

After the listing agent explains to the first buyer's agent that a higher offer will be sent to the bank, generally the listing agent will ask the buyer's agent if the buyer wants to sit in escrow for another 30 to 90 days while the bank contemplates accepting a higher offer. In that situation, most first-place buyers who have submitted a lower offer will bow out when they realize their offer will most likely be passed by.

Be careful when submitting a short sale purchase offer above market value. If your offer is too high, even if the bank accepts the short sale, odds are your bank's appraiser will come in with a lower appraisal. In that event, the listing agent will need to renegotiate with the short sale bank, and the short sale bank might not be willing to lower the price. It's risky to offer too much, and you could wait weeks or months only to discover your loan was denied due to a low appraisal.

Why a Seller Might Want to Accept a Second Short Sale Offer as Back-Up

A seller of a short sale wants one basic outcome. The seller wants the bank to accept the short sale. Banks tend to accept short sale offers that are priced within the realm of market value. The reasons to accept a second short sale offer in back-up and to submit that offer for consideration are:

  • Maybe the second buyer is more qualified to buy than the first buyer.
  • The first buyer might not be 100% committed to buying the short sale.
  • The first buyer's sales price might be too low.
  • The seller might be relieved of making a seller contribution with a higher sales price.
  • The seller might reduce the deficiency, if any, if the offered price is higher.
  • The seller's tax liability, if any, could be reduced with a higher offer.