Vinicius gave you pretty much how it is I'll only add that the listing agent usually emails the banks request for " highest and best " so it kind of is in writing, but not all of them do it by all means I have had verbal negotiations with them all the time. As far droping out, since there is only one offer higher if you want the place just let your offer stand, if you don't want the place don't worry about cancelling it as I find most reo listing agents just throw them away and only keep the accepted offer ( it's sad but true) and besides your realtor should have put a date anywhere from 3 days to a week after which the contract is not valid.
Hope that helps, good hunting.
You should be able to get an official rejection of your offer, however, I wouldn't hold my breath. From my experience asset managers are less concerned with following California Real Estate protocol or any other state protocols and just want to facilitate the sale of their assets.
Good luck on the next offer.
For other information regarding REO's see http://SantaClaraValleyREO.com
The good news was you were second in the bidding and next time will hopefully be first.
If the bank has a specific offer for you to consider, they would need to counter-offer you in writing.
If they're 'fishing' to see what you will do it's common to ask you to try again, and that would be a verbal request.
You may want to ask your agent to get a signature on the original offer saying that it wasn't accepted so that it isn't floating around out there as a valid offer.
If you decide to drop out of the race, once again it might help if you get that initial on the refusal clause, but it's a formality - not necessarily critical.
Unfortunately the banks seem to almost write their own rules of operation in these matters, so your agent might ask for these documents and not get them.
Your offer will have had an expiry date on it. Once that date and time is passed, the offer is no longer valid anyway so you don't need to do anything further.
I hope this helps.
As already explained your experience is very common in todays market.
Incidentally, your offer was not rejected, it was countered. By not responding it was you who rejected the counter offer.
This is a question that you need to ask of your agent. If you don't have one, then I would advise getting a competent real estate agent that makes you feel comfortable and confident.
If you would like to set up an interview, please contact me.
Keep in mind the first offer may back out for some reason or not get financing. If you liked the place you may want to let your offer stand and see if they come back to you down the road.