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adcoleman, Home Buyer in Seattle, WA

Short sale backup offers

Asked by adcoleman, Seattle, WA Wed Dec 10, 2008

In a short sale transaction, when an offer is signed around by buyer and seller and is awaiting lender approval, what happens with backup offers? Do they get submitted to the lender? Do they get held by the listing agent and presented to the seller only if the initial offer is rejected by the lender? Does the initial buyer get first right of refusal and get a chance to match the backup offer?

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There are a variety of real esate company addendums in use that can get attached to offers. These will control the answer to your question for contracts they're part of. Absent one of these, the NWMLS has Addendum 22SS which allows the buyer to negotiate with the seller to be the only offer being considered. Washington State law requires that all offers be presented to a seller, regardless of their contract provisions. As agents, we're instructed to advise the seller to consult an attorney if they wish to accept a different offer from what's already been accepted. A seller can only enter into one contract to sell their house unless they negotiate special provisions, in writing, to give themselves more opportunities to consider other offers, such as for contingent sales. Underlying lenders, however, are not sellers, yet. Until they foreclose, they have no legal right to expect to see every offer a seller receives. So, if a seller agreed to accept no other offers as one of the terms of their agreement with a buyer they would be in breach of that agreement if they forwarded another offer to their lender for consideration. That is precisely why NWMLS divised the 22SS as it is. Common practice, though, is that listing agents delete this buyer provision in the 22SS in the counter and then forward all offers received to the underlying lender, who always take the highest one. There's no chance for earlier buyers to match offers. That's way too hard to manage. That's why so few buyers have a satisfying experience buying short sales.
1 vote Thank Flag Link Wed Dec 10, 2008
This is going to be determined by the language in your offer and the statutes established by your state. In Boise it is typical for sellers to retain a right to continue marketing the home. I also have my sellers insert language that allows the seller to submit additional offers to the bank at their discretion. All buyers are encouraged to make their 'best and last offer'. Under this procedure, there is no right of first refusal. It is assumed by the original offer that the buyer has no interest in increasing the offer because by signing this addendum they are in fact saying that this is their 'last and best' offer.
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
208-602-9052
1 vote Thank Flag Link Wed Dec 10, 2008
It depends on the lienholder. Some will only look at one offer at a time, so it doesn't matter if there are offers that come later. Some lenders want to see offers as they come in. Nothing you can do about that. Checking the boxes on 22SS is great, but personally I don't think you can really stop anyone from accepting more offers, regardless of what box is checked. it's the lienholder that controls things, not the seller or the buyer.

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.
0 votes Thank Flag Link Thu Sep 30, 2010
Most likely the lender will approve to whoever offered at higher price and has the stronger financial ability to close the deal.

Learn more about Short Sale in WA at http://ShortSaleHomeExpert.com
0 votes Thank Flag Link Thu Sep 30, 2010
Hi - The NWMLS has an addendum to cover this question and the answer depends on which check box you agree to on your initial offer - one box allows you to take back up offers and the other does not.
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.

Good luck!
Web Reference: http://www.cooperjacobs.com
0 votes Thank Flag Link Fri Jan 9, 2009
In my humble opinion, I believe first responder David O'Dell summed it up the best. The answer depends on how the offer was structured and the language contained therein.

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.
Web Reference: http://MyGeorgiaHomes.com
0 votes Thank Flag Link Fri Jan 9, 2009
TED SHOOP, Real Estate Pro in Buford, GA
MVP'08
Contact
Keep it simple. When the lender does not except your original offer they will counter. Thats when you make any necessary changes. This point you are 90% done.
0 votes Thank Flag Link Fri Jan 9, 2009
There is an addenda to a purchase and sale agreement (PSA) called the 22SS that covers this very issue. If you submit a PSA and include the 22SS, line 3 states Offers from other buyers: Seller may_ or maynot_ submit multiple offers to the bank. As a buyer obviously it is best to have them agree to not show any other offers while your's is in play. If you don't spell that out no offer gets priority in the banks eyes. First come is NOT first served. The highest offer wins.

Take care,

Matt Miner
0 votes Thank Flag Link Tue Dec 16, 2008
Sellers need to deal with the bank ONE OFFER AT A TIME. If the seller's agent is throwing multiple offers to the bank, you might want to reconsider pursuing that property, lol. Working with one offer simplifies many things on many different levels.

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

Good luck
0 votes Thank Flag Link Fri Dec 12, 2008
"Do they get submitted to the lender?"

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?
0 votes Thank Flag Link Wed Dec 10, 2008
Don's answer is right on. Depending on the 22SS, even if you have a signed around offer, that doesn't mean you're going to get the house. Lenders will generally not negotiate or counter. They do things on a take it or leave it basis.
0 votes Thank Flag Link Wed Dec 10, 2008
WashingtonState has a short sale addendum to cover this. There is a check box stating whether or not the
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.
0 votes Thank Flag Link Wed Dec 10, 2008
The quick answer is... that it depends. All offers regardless of timing should be presented to the seller and in a short sale to the bank as well. Your buyer’s agent should include the necessary addendum that will allow it to get in first position if the first position offer is rejected by the bank or the seller.
0 votes Thank Flag Link Wed Dec 10, 2008
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