If you are a buyer wanting to bump the prior offer there are three things to do to protect your interests. First, hire an experienced Realtor who has experience on both the listing and selling side of short sales. Second, make sure your offer is the best one on the table. Third, have patience. The process is neither fast or easy, but you have to consider that the price you pay for getting such a good deal is time.
David O'Dell, GRI
Keller Williams Realty Boise
Speaking of that box--I always check the boxes that allow seller to accept more offers as well as the box that allows buyer to walk away prior to lienholder approval. Why? You can't stop em anyway. As a listing agent, if I'm telling my client I won't accept more offers on his property, then I'm not really acting in his best interest anymore. And If buyer wants to walk, there's plenty of other contingencies they can use to accomplish that.
As an agent who is currently pending on short sales, both on the listing and selling side, the best advice I can give a buyer of short sales is to make sure your offer is complete, strong, and as close to the bank's minimum as possible. If there's a recent "approved" amount--Don't try to lowball that, unless it's way over the property's value, which sometimes happens. Do your research and be smart--That's your best chance of prevailing. Find an agent with lots of short sale experience--Not necessarily a self-professed short sale "expert" but someone who has a lot of experience. There's a difference.
Also, since I'm on my soapbox--In most cases, you probably don't need to pay extra for a short sale negotiator. Many escrow companies have short sale negotiators and they do this for little or no cost. If your agent has a lot of short sale experience, he or she will already have a relationship with someone like this.
Learn more about Short Sale in WA at http://ShortSaleHomeExpert.com
The back up offer is just that - a back up offer and falls behind the first offer and the first offer's terms. The first offer does not have to compete with it.
It is critically important to note that disclosures, process/procedures, actual contract language and special stipulations contained in the Purchase & Sale Agreement vary from state to state. Whether you are buying or selling a property marketed as a short sale, it is critically important to work with an agent or Realtor who has specialized training and experience working these type transactions.
When listing short sales, I have prepared a detailed set of "Instructions to Bidders" that covers topics like this as well as other questions that may come up while the parties are waiting on the loan servicer's approval. By furnishing these instructions, both buyer and seller know upfront what is expected of each and how multiple offers will be handled.
My tip: If you're the buyer, do your best to have the seller sign the addendum to accept and deliver your offer exclusively. If the seller retorts and asks, "now why would I do that?" You need to give them an incentive right?
At this point, you probably won't have an incentive for the seller unless your offer is ridiculously higher than your competition. OR, you could offer to provide professional negotiations along with your offer with your buying agent (whom in this situation will be a short sale expert). Tell them that your buying agent has had extensive experience in short sales and will probably close the deal quickly and efficiently.
The listing jumps up and down in utter joy that he/she doesn't have to deal with negotiations (and still get paid), and the seller will feel a lot more comfortable working with a professional.
This might sound like a plug, but trust me, it works. I've tied up two properties (exclusively) in the last week using this strategy
That is usually the seller's option. If it is a higher offer, I don't see any reason why the seller would not submit it to the lender. Even if the seller cannot accept your offer under the terms of the original contract, sending it to the lender would give the seller an out on the first contract, since it is subject to lienholder approval. Once the lienholder sees the higher offer, they will disapprove the first contract, leaving the seller open to accepting your offer. Have your agent present the offer directly to the seller so your agent can explain that to the seller, if necessary. That appointment with the seller must be made through the listing agent.
"Do they get held by the listing agent and presented to the seller only if the initial offer is rejected by the lender?"
That is illegal in most every state. All written offers must be presented to the seller (not the lender).
"Does the initial buyer get first right of refusal and get a chance to match the backup offer?"
No. There is nothing in the contract giving any buyer the right of first refusal except in contingent contracts. That language does not exist in any other preprinted forms. Whether or not your offer is used to increase the offer by the first buyer has more to do with your qualifications as a borrower. If the first offer is a cash offer and yours is an FHA financed contract with 3% down, it would have to be presented to the seller, but would not likely make it past that point. It's not all about the offer price and many lenders are more concerned with the ability of the buyer to finance the house.
The reality is that anyone can write an offer on any property that has not yet closed escrow, and that offer must be presented to the seller. MOST every short sale will reach a point where the seller cannot perform as of the closing date, leaving both parties needing to sign to extend that closing date. So even if the seller cannot formally accept your offer when you present it, he/she can usually opt out of the contract in play instead of extending the close date, and switch it out for your offer.
Give it your best shot. What do you have to lose?
seller can accept additional offers. Some lien holders want all offers submitted to them and they make a decision based on bottom line. If you are in back up in the short sale market you must be ready to move when and if the first fails. In my area the original buyer is rarely still interested when the lien holder finally makes their decision.