What Does Active Short Sale Contingent Mean?

Learn the complexities of buying short sale contingent properties

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Question: What does active short sale contingent mean?

A reader asks: "In looking through short sale listings online, I have noticed that some of those listings say "active short sale contingent." Does this mean that the bank has approved the short sale but nobody has made an offer yet? What does active short sale contingent mean?"

Answer: In the multiple listing service in northern California, once a seller has accepted a short sale offer, that listing can be placed into a status called "active short contingent." It's supposed to let other agents know that the home is no longer for sale because an offer has been accepted.

It does not mean, however, that the bank has issued short sale approval. The accepted short sale offer is simply contingent on the bank's approval.

Because this status confuses MLS users, some listing database services changed their procedures to allow another status for these types of short sales; they are now better defined as "pending short lender approval." The remaining homes in the MLS flagged as "active short contingent" are those where the seller is actively looking for backup offers.

How Active Short Sale Contingents Work

Sometimes, depending on the real estate market, an agent might list a short sale property below market value, much to the chagrin of some buyer agents. These agents are often vexed because they have a hard time figuring out how much the home is actually worth and don't know how much their buyers may need to offer. But this practice often brings multiple offers, which tend to result in a much higher sales price for the seller.

Here is how it works:

  • Buyers submit offers that generally contain a three-day window, during which time, the seller can pick and choose among the offers.

     

  • The seller selects the best offer, which isn't necessarily the highest offer, and signs it.

     

  • Because buyers sometimes don't want to wait for short sale approval, the seller may accept one or more back-up offers as insurance.

     

  • The accepted offer is submitted to the bank for approval.

     

  • At the seller's discretion, and providing the contract does not contain verbiage that prohibits it, the seller may direct the agent to send back-up offers to the bank as well.

This means that by the time you spot an active short sale contingent listing online, the process is most likely well underway. But there is always a chance the accepted contract could fall apart.

Making Offers on Active Short Sale Contingent Listings

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. When another offer gets accepted from these types of buyers, the buyers then withdraw their outstanding contingent offers.

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

If the offer you submitted is behind the back-up offers, you might not stand much of a chance to buy that short sale. Your second best strategy is to be in the first back-up position. Your optimum position and, of course, best strategic move is to be the accepted offer.

Unless my buyer-clients have nothing better to do than to wait around to see if an active short contingent offer falls apart, I advise them to seek out only active short sales and to ignore the active short contingents. I'd rather they wait to see if the home comes back on the market as an approved short sale and snatch it then. Still, it's worth it to call the listing agent to check on the status. 

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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