Short Sale Offer: Am I Under Contract or Not?

SoldThere are a lot of myths and resulting arguments as to when a short sale offer should be considered under contract.

The listing agent presents offers to the seller for a decision. The seller, who is the owner of record, is the one who decides which offer to accept.

In a short sale, the lender must also agree to the transaction since they are being asked to take less than what is owed. However, the bank is not the seller. The lender’s acceptance or rejection of the short sale is a contingency to the contract.

When the seller signs the real estate contract, the offer is accepted, though it has the short sale contingency that must be resolved later. The real estate contract is between the buyer and the seller, not between the bank and the buyer.

Many Multiple Listing Services (MLSs) require a listing broker to change the status of a listing to pending or under contract once an offer is accepted. Even if an MLS system does not require a change in status to pending or under contract, the head broker in the listing office might have a policy requiring a status change.

Regardless of what the MLS rules are, agents are ethically required to disclose the existence of accepted offers, including those with unresolved contingencies. If another agent or buyer inquires about the property, the listing broker must inform them up front that the seller has already signed a real estate contract that is awaiting lender approval of the short sale.

Some states allow a seller to accept an offer in a backup capacity, so long as the backup buyer is fully apprised of the existence and precedence of the first accepted offer. In other words, the seller can sign another offer, but that does not override the first contract. The backup buyer can only come into the picture if the first buyer and seller terminate their contract.

Some listing brokers like to continue to show a short sale listing just in case the current buyer under contract decides to walk away. On the one hand, that is a good strategy, as many buyers may end up walking away from the deal. However, it behooves the listing broker and seller to select the right buyer in the first place, so the need for a backup buyer diminishes.

We believe that the buyer and seller should commit to the transaction. For the buyer, that means making a hefty deposit, scheduling any inspections right away, and agreeing to wait for the long term. For the seller, that includes marking the listing as being under contract.

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