I have helped people buy several foreclosure homes in Santa Clarita this year....and the answer is yes, until you or your agent have received the bank addendum signed by the seller ("fully executed"), they can take other offers if they desire. That verbal acceptance (usually done informally by email) doesn't mean anything. I can tell you that it doesn't happen often like this, as it makes the listing agent look bad and ruthless to a certain extent and develops a bad reputation, but, the seller is under no requirement to sell to you until they have signed the bank addendum that they required you to sign first. You made an offer, and they essentially make a counter offer through their bank addendum, if they receive a better offer before you guys come to a fully signed agreement...then they can act on it.
Often times when the REO listing agent has received verbal acceptance from the seller, and it's just a matter of getting the bank addendums fully executed, that REO listing agent will pull it off the market so it's no longer showed, and marketed to the public and other agents. But the REO agent is under no obligation to do that, but it would be the right thing to do in my opinion, and is done - just depends on the agent.
Sometimes your agent representing you can assist by keeping a good line of communication open with the REO listing agent, creating a good rapport, and "try" to avoid a situation like this. Sometimes a well established rapport can mean you getting the house or not - sometimes it's meaningless.
Best of luck.