I might view this a little different than some others have. You may or may not have a position to cancel the first offer, however you might be able to accept another offer subject to the first one closing. The standard contract used in most Arizona Residential transactions has a provision built in to allow the seller to continue to accept offers, the exact terminology may vary due to Addendums and it would be necessary to look closely at what you have signed on the first offer to determine your rights.
If your neighbors want to submit an offer, more power to them. If the offer is better than what is currently being presented to the banks they might be successful with it, the bank might like offer two better and reject offer one.
If your neighbors purchase the home and decide to rent it out you could be the tenant, just make sure no fraud takes place etc.
I'd consult with a real estate attorney before entering into anything close to that.
Why is it a bad, bad idea? Let's take a hypothetical example. Suppose you're facing foreclosure, and you're not able to sell without doing a short sale because you don't have sufficient equity. Sound familiar.
OK: You bought the house no money down in 2006 for $200,000. The house is now worth $185,000. Meanwhile, with back payments, penalties, and so forth, you owe $205,000. You'd like to sell the home and lease it back. Your payments are $1,330 plus taxes, insurance, and PMI. Let's say $1,500.
Suppose it's a legitimate investor. He just wants to make a bit of money on the transaction. So he buys the house from you for what you owe: $205,000. And the deal is that he'll sell it back to you in a year for $215,000. That's a $10,000 "profit" for the investor on an investment of $205,000...or slightly under a 5% annual return. That's barely better than the rate of inflation. And the investor doesn't want to lose money every month. The investor's mortgage will be slightly more expensive than yours, since he's an investor and he's financing even more than you did. Let's say $1,600 versus your $1,500. Now, there's almost no profit there for the investor.
As an owner, you were getting to deduct your taxes and insurance from your income tax. That lowered your effective monthly payment from $1,500 to about $1,100. Now, as a renter, your monthly cost will jump from that $1,100 to the $1,600 the investor has to charge. You couldn't make your payments when your gross payment was $1,500 and your net payment was $1,100. How will you be able to make your payments to the investor at $1,600? That's an extra $500 a month!
Then, it's a year from now. You've somehow managed to make those $1,600 a month payments. And you have the opportunity to buy your house back for $215,000. But your credit was somewhat damaged by your close call with foreclosure. And you may have difficulty finding a no money down loan, with bruised credit, for $215,000. If you can, fine. You couldn't afford the earlier $1,500 a month payments. Can you afford higher payments in 12 months? And if you can't find a no money down loan to repurchase your house, can you come up with 5%--$11,000--in a year?
So, a year from now, after effective monthly payments $500 more than you're paying now, with bruised credit, will you have $11,000 for a downpayment? I don't think so. Further, we assumed that the value of the property declined since you bought it, and it's now worth $185,000. I really doubt it'll appraise for $215,000 in one year. Highly unlikely.
Or, suppose the investor really is able to pick up your house in a short sale. Suppose he can buy your property for $175,000. Then maybe he'd be content selling it back to you for $190,000. Except the house may still not appraise for $190,000. And don't you think the lender is going to get suspicious? You buy a house for $200,000. A couple of years later, you sell it as a short sale for $175,000. A year later you buy it back for $190,000. Many lenders will have seasoning issues, not to mention questions about whether they're being scammed.
And that's why, from a homeowner's standpoint, a sale/leaseback is a bad, bad idea.
And it's turned into a very bad idea for investors, too. Because, a year from now, some homeowners would take the investor to court. "I thought I was getting a loan to bail me out," the homeowner says. "I had no idea I'd sold my property. Now I have to buy back my own property? I'm being scammed!" A lot of judges have heard that argument, and sided with the homeowner.
NonRealtor's observation is harsh but correct: Enjoy the house while you can. You're probably going to be moving soon.
Your REALTOR is making a valid point and advising you correctly.
When a Purchase Contract has been signed by all parties, you have what is considered "Meeting of the minds". Meaning, each party has willing agreed to make a "Good Faith Effort" to execute the contract.
However, you are allowed to except your neighbor's offer as a "Back-up Offer"; contingent upon you current contract being canceled.