With a short sale the seller still decides which offer to accept and a completed short sale package is then delivered to seller's creditor for final approval. It is likely that your seller felt that there was some value outside of the purchase price with the other offer(s). Keep in mind that many short sale sellers are not as motivated by the bottom line as traditional sellers since they are likely receiving little (some short sales will allow the seller to walk with a $1,000 at closing as an incentive for the seller to cooperate with a pre-foreclosure sale) or no proceeds at closing. The seller has to be careful here because their creditor is likely to complete an appraisal or competitive market evaluation on the current value of the home prior to accepting the short sale. If their internal evaluation, based on today's present values, leads to a significantly higher opinion of value, the sellerâ€™s short sale request will likely be rejected. The creditor is not likely to let the property sell for a steep discount based on recent market activity (not the outstanding loan amount).
This is where you need to determine the level of risk you are comfortable taking. You may have to be a little more creative to appeal to the seller. A few things that come to mind that may accomplish this task are:
1. Larger escrow deposits - the last thing a seller wants is to accept a contract and to successfully negotiate a short sale with their creditor only to have the buyer default prior to closing. A good deposit would likely go a long way to demonstrate that you are well intentioned.
2. Sufficient time for the seller to negotiate the short with the creditor built into your offer. In Pennsylvania, where I practice, we have a short sale addendum that is utilized that specifies a date that the seller has to negotiate the short with their creditor. After this date either the buyer or seller can terminate the contract if an approval has not been obtained. Offers may also be measured on the amount of time that they are willing to wait for a final approval. This may be more important to the seller since time is not their friend. They may feel secure knowing offer #2 (even if less than offer #1) was willing to be more patient even if the banks bottom line was compromised in the process.
3. You may want to complete inspections on the property up front prior to submitting an offer. Of course the risk here is that you incur the cost of inspections with no assurance that your offer will be accepted. But this way you WAIVE inspections in your offer. Remember short sale sellers are ofter very motivated by time. Inspection contingencies take time and often give the buyer a right of refusal which the seller may not want to compromise.
4. Don't ask for personal property. Often these items are the last assets that the seller may have to their name. Refrigerators, washers & dryers might not seem like that big of a deal but could be deal breakers if the seller would like to keep these items to help with their housing transition.
These are just a few suggestions. I don't practice in California and therefore may be unaware of restrictions or other opportunities that may exist locally. What I do know is that there are REALTORS that are having success in this niche. Talk to your real estate agent to see what else you can do to stand out from the crowd.
Lastly, your question seemed to imply that the seller's agent may have had their own agenda to sell to family or a friend. While I can't assure you that this didn't happen, I would hope that a real estate professional would put their client's goals ahead of their own. Many states have laws against such actions and the REALTOR Code of Ethics, assuming the seller's agent was a REALTOR, also forbids this conduct. Check out Article 1 of the Code of Ethics. I have attached the 2009 REALTOR Code of Ethics for your reference.
Good luck with your next offer!
There is another possible explanation for why the bank accepted a lower offer than yours on a short sale listing. It is possible that the listing agent received the other party's offer before yours and that was the offer that was accepted by the sellers and submitted to the bank - and subsequently accepted by the bank. Other offers received were held as back-up offers only in case something went wrong with the first offer. There are so many different scenarios in dealing with short sales. They are difficult and frustrating - but keep trying.
You likely are not doing anything wrong! There are many "all cash" buyers in the market right now. It's very hard to compete with them and they always go way above the asking price. It might not be easy to get this information, but sometimes the listing broker will let your realtor know, what kind of offers you are up against.