Question about my accepted short sale offer...

22 Replies

Long story short the seller accepted my offer and now the deal has to be approved my the bank. The house was sitting since June with no activity and they dropped it $20k and I offered $7,000 off he new price. My offer is subject to the inspection. My question is: my offer was subject to an inspection and the sellers agent suggested I do one ASAP but I don’t want to pay for an inspection of the bank hasn’t accepted my offer yet. Then if they decline it, I’d be out my inspection money. Can someone help me understand if I should be proceeding with the inspection before the bank accepts? Or is it ok to hold off until the bank accepts? I should also clarify that I am not working with an agent, just myself so kinda flying blind in some regards. Thanks, DM

The seller accepting means almost nothing in a short sale process. The bank makes the final decision on whether to accept the offer or not and continue to the process. You are correct in waiting until the bank gives the go ahead.

This is determined by your contract.  Does your contract have a certain amount of days for the inspection? Do you have a clause in there that timelines begin once third party approval happens?

You are correct not to want to pay money until the contract is actually in place.  Since you did not use an agent, please check your paperwork to make sure it includes language stating that the timelines of the contract do not start until the bank and everyone has fully approved the contract. 

You want to make sure day one, is the day that the bank approves. (timelines for contingencies, etc. )  If not, your inspection contingency timeline may already have started and will expire before bank responds. 

Also- why not use an agent?  Listing ppw typically states that the listing agent gets the commission for both sides, if buyer does not have an agent. Now you dont have anyone representing you, which the seller would pay for, not you. 

Buyers always want the inspection after bank approval. As a listing agent I Never allowed this.....too many “buyers”, after bank approval in 60 days or so “changed their mind”, found a better deal” “yada yada yada”. What does your contract say?

I went straight to the sellers agent because I was told through an online inquiry that there was an offer on the property that was being accepted. I reached out myself since the house was in my neighborhood I called the sellers agent and asked. Turns out the offer that was “to be accepted” was not solidified. So basically since I didn’t listen to what the one receptionist told me, I was able to secure the property myself. The paperwork is subject to an inspection but I need to look at clauses on the timeline. As of right now the sellers agent told me to hold tight while she gets the deal prepped and ready for the bank approval. Apparently that takes a while. She’s confident it will be accepted since it was on the market 6 months with no hits. I guess we will see. I had a real estate friend help review the offer she drafted up and he said it looks like a well drafted doc so I am feeling pretty good right now. I’ll double check on the timing but even if I have to shell out the money on the inspection ahead of time, it wouldn’t be the end of the world.

Well, being on the market for 6 months with no hits means nothing to the bank, right or wrong. They will order a bpo after the seller has submitted all their short sale paperwork(hopefully already done) and they review your offer for the basics. They will likely go straight off their bpo.....a certain % under, for their acceptable price.

@Derek Hebert , seeing as (it reads like) you're already gazumping someone with prior (probably conditional) claim, what's to stop someone else doing the same to yours?

The bank can argue: the first non-conditional offer to meet our minimum, wins! Good luck...

I wouldn't spend the money until you have an accepted contract unless the bank requires it or a competing offer does it. Also, there should be an inspection period stated in the contract. That said, who is representing who? The listing agent is giving you suggestions? Is the listing agent also representing you? Is this dual agency? There should be a disclosure showing who the agent represents or doesn't. It's very important to know what team the agent plays for. 

FYI I'm not claiming this is the situation here, but in general, some short sale agents knowingly list homes for much less money than the bank will accept, then they have an offer to counter or to shop against other offers. If you are not represented I would suggest the help of an attorney or other real estate professional. Good luck.

One more thing. There is a lot more competition chasing fewer and fewer short sales, so the banks are now in the driver's seat and most know it.

Originally posted by @Derek Mizysak :

I went straight to the sellers agent because I was told through an online inquiry that there was an offer on the property that was being accepted. I reached out myself since the house was in my neighborhood I called the sellers agent and asked. Turns out the offer that was “to be accepted” was not solidified. So basically since I didn’t listen to what the one receptionist told me, I was able to secure the property myself. The paperwork is subject to an inspection but I need to look at clauses on the timeline. As of right now the sellers agent told me to hold tight while she gets the deal prepped and ready for the bank approval. Apparently that takes a while. She’s confident it will be accepted since it was on the market 6 months with no hits. I guess we will see. I had a real estate friend help review the offer she drafted up and he said it looks like a well drafted doc so I am feeling pretty good right now. I’ll double check on the timing but even if I have to shell out the money on the inspection ahead of time, it wouldn’t be the end of the world.

 "As of right now the sellers agent told me to hold tight while she gets the deal prepped and ready for the bank approval. Apparently that takes a while. "

Just be aware that "a while" to a bank may be much longer than your "a while". SS have gotten faster, but some banks can still take a very long time, and sometimes just to say no.

Originally posted by @Brent Coombs :

@Derek Hebert , seeing as (it reads like) you're already gazumping someone with prior (probably conditional) claim, what's to stop someone else doing the same to yours?

The bank can argue: the first non-conditional offer to meet our minimum, wins! Good luck...

She said the other offers never came up high enough and therefore never were accepted (by the seller). Since the seller accepted my offer, doesn't that secure the property for me? So no additional offers can be entertained until the outcome of my process? Understood the banks have the ultimate say but I didn't think other offers could be entertained.

If your offer was executed by the seller, then yes you have a binding offer subject to lender approval or any other conditions stated in your offer. Technically that means the seller cannot enter into another contract unless your deal falls apart. 

With that said - don't count on every agent to play by those accurate rules. 

Regarding inspection - your contract should absolutely state a timeline for this. If it was my listing there would be a 100% chance that you have a short timeline from execution (not approval) to get these done.

Everyone should know the true condition of the property and negotiate it, or walk away - early on in the game before months are wasted by both parties waiting for approval.

Thanks @Minna Reid for the insights. I’m meeting the sellers agent Friday to walk through timeline. A lot of people on here freaked me out that I went without an agent. Understood there is a risk but I think that’s what made me a desirable offer to begin with. I’ll keep you all posted ....in 2 months, ha!

Originally posted by @Derek Mizysak :

Thanks Minna Reid for the insights. I’m meeting the sellers agent Friday to walk through timeline. A lot of people on here freaked me out that I went without an agent. Understood there is a risk but I think that’s what made me a desirable offer to begin with. I’ll keep you all posted ....in 2 months, ha!

 Not having an agent had zero effect on it being a desirable or nondesirable offer.  The commission paid from the proceeds of the sale is the same whether you had an agent or not.

Also in regards to them accepting another offer....backup offers can still be received....and if one comes in higher, the bank will certainly not approve your offer in favor of taking a higher offer.

@Russell Brazil , thanks for the insight about sellers accepting a backup offer and then banks turning down a low offer knowing that a higher backup exists. I hadn't thought of this before--good stuff to keep in mind.

@Russell Brazil , banks don’t generally see back up offers for a short sale.

@Russel Brazil, to the agent I was a more appealing offer. Which means she’d be more inclined to advise the seller to pick me since she’d get the whole commission. That was my thought at least, maybe I’m wrong.

Either way, the paperwork does have a 10 day clause for the inspection so I will get that done. I would hope that while the agent is going through the lengthy process to pitch my offer to the bank, and I have the signed acceptance from the buyer and paying for an inspection that they wouldn’t continue to stack up additional offers on the back end to almost start looking beyond me as a buyer if someone comes in 2 weeks and offers $5,000 more. That seems pretty sketchy. Understood the bank makes the final call but an accepted offer from the seller should start the process and close the door on additional offers right now. Isn’t that how it’s supposed to work?

Some of you are making it sound like the Wild West and no signed agreements matter.

Originally posted by @Derek Mizysak :

@Russel Brazil, to the agent I was a more appealing offer. Which means she’d be more inclined to advise the seller to pick me since she’d get the whole commission. That was my thought at least, maybe I’m wrong.

Either way, the paperwork does have a 10 day clause for the inspection so I will get that done. I would hope that while the agent is going through the lengthy process to pitch my offer to the bank, and I have the signed acceptance from the buyer and paying for an inspection that they wouldn’t continue to stack up additional offers on the back end to almost start looking beyond me as a buyer if someone comes in 2 weeks and offers $5,000 more. That seems pretty sketchy. Understood the bank makes the final call but an accepted offer from the seller should start the process and close the door on additional offers right now. Isn’t that how it’s supposed to work?

Some of you are making it sound like the Wild West and no signed agreements matter.

That would only work in theory if the seller and listing agent had any power over the process. They do not. The contract will go sit on a bank asset managers desk til they make a decision.  The agent nor the seller have any relationship with that asset manager...and in fact in some states it is even illegal for the agent to have communication with the asset manager.  That decision from the asset manager could come tomorrow, or in six months.  Although @Wayne Brooks mentions banks dont see the backup offers, so what is customary may change in different markets. In MD/DC we have to pass the backup offers along to the bank. In MD, the agents do not negotiate with the banks as that is barred by law, but in DC we do, not that it is all that effective as the bank has their bottom number that they will take. (Ive never done a short sale in MA or VA where Im also licensed, so Im not sure the specifics on those 2 states) These days Id say universally, short sales are hard to complete as banks are not scared of having an REO to deal with. They would rather let it go REO so they can make a claim against the MI and be made closer to whole that way. 7 years ago was a different story.

Nothing closes the door to people continuing to make offers on properties when they are under contract...that goes for all real estate transactions. The NAR Code of Ethics (Which is actually law in many states) dictates that all offers need to continue to be presented to a seller even if a property is under contract. A seller can not get out of an existing contract based on a better offer, but a bank does not need to approve a short sale just because there is an offer. They can simply not approve the sale...and just because there is another better offer doesnt mean they will approve a sale to that one either.

Id say unless the bank has already approved a short sale ahead of time with a strike price, it is probably a waste of time to purse one these days.  

@Russell Brazil It just seems nuts to me that agents would be submitting add’l offers )0 days or so into a short sale......potentially booting the contracted buyer. Didn’t realize different areas did that. I had a bank rep tell me one time they wanted to see any later offers..... I thought “yeah, right”.

Originally posted by @Wayne Brooks :

Russell Brazil It just seems nuts to me that agents would be submitting add’l offers )0 days or so into a short sale......potentially booting the contracted buyer. Didn’t realize different areas did that. I had a bank rep tell me one time they wanted to see any later offers..... I thought “yeah, right”.

Whereas, it seems nuts to me that the seller can even put the property under a sale contract - (unless they're then going to pay the bank every dollar they're owed)! Get what I mean?...

Russel - This is absolutely not customary here, and I would never handle my shorts this way...I like for mine to actually close. Playing games rarely leads to that. Once a contract is executed by buyer and seller - the deal is binding. Short or not - the buyer and seller are still the principals in the transaction - The short sale approval is just  a contingency.

I would also have to disagree with your statement that universally short sales are hard to complete. That is simply not true. Even if this is the case for you - do not assume this is a universal rule.

Originally posted by @Wayne Brooks :

Russell Brazil It just seems nuts to me that agents would be submitting add’l offers )0 days or so into a short sale......potentially booting the contracted buyer. Didn’t realize different areas did that. I had a bank rep tell me one time they wanted to see any later offers..... I thought “yeah, right”.

 Well there is a whole ocean between what should happen and what does happen.  Im pretty sure almost no backup offers get presented for any transaction, unless they are using it for leverage against a buyer.  Most agents dont want to rock the boat once the transaction has started. Im a stickler for the rules though for a few reasons....BP gives me a very public presence....Ive served on my boards grievance/ethics committee...and my broker is the chairman of the state real estate commission.  So my practices tend to be in line with the letter of the law as opposed to most agents.  

Funny enough I just had a backup offer problem recently.  I had submitted an offer on behalf of a client and I had a feeling that our offer was not presented at all to the seller.  So the property went under contract like 2 weeks after we submitted and I kept getting the run around. Our offer escalated well over list,....and if offers are escalating it should be under contract in a couple days, not weeks. So I told the agent after it went under contract and we didnt get it...that I wanted to present our offer to the seller in person as a backup offer. He refused to let me present to the seller in person.  So that was about a month ago, and I am trying to decide if I should just drop it or If I should file an ethics violation against him.

@Russell Brazil and @Minna Reid Great conversation, I am glad I asked the question. For now I have the property under contract and the wheels are in motion. I will let you know how it pans out for me in the coming weeks. I am meeting with the seller's agent tomorrow to go over timelines and what to expect from here on out.

Thanks again everyone!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here