Whatever the details of the short sale contingency itself, some thought should be given to how subsequent offers will be handled. Lender approval takes time. During that time, it is not unusual to get other offers. Indeed, it is often in both the lenders and the seller’s interest to try to get better offers. At the same time, short sales are uncertain enough for the buyer that introducing multiple offers into the mix can be very disconcerting.
A good short sale addendum will address the issue of subsequent offers. The old industry standby of taking “backup” offers doesn’t really work. A lender will not approve an offer in “first place” if there is a better offer in “backup.” Because a better offer will be more likely accepted, and result in less loss to lender and seller alike, it is often not in the seller’s interest to withhold subsequent offers from the lender. At the same time, passing on subsequent offers can cause hard feelings, contract disputes and increase marketing difficulties.
One way to handle the multiple-offer problem is to warn buyers right up front that the seller will continue to market the property and submit all offers obtained to the lender for approval. This will discourage low-ball offers. It may also, however, complicate the approval process and discourage some buyers. Another approach is to create contingent offers under which there is no contract at all until the lender approves. Such contingent contracts can be terminated by either party for any reason prior to approval. This solves some problems, like timing issues, at the expense of certainty.
Other approaches, for instance, having an open “offer period” designed to obtain the best offer prior to submitting an offer to the lender, are possible. Whatever the approach, it must be clearly understood by all the parties before offers are accepted. Multiple listing service rules about “pending” sales must be addressed. Short sales are not just deals with a “subject to lender approval” contingency. Careful preparation, including client counseling and proper disclosures, is key. So important is such counseling that Oregon form publishers attach a “Short Sale A Brief Summary” to their short sale addendum. Click here to find a sample Short Sale A Brief Summary form.
The contractual issue of continued marketing is separate from the MLS issue. Any seller is entitled to continue to market their property. Putting that fact in the contract is a matter of wise disclosure, not legal right. None of this has anything to do with the multiple listing services.
Multiple listing services typically have two categories of listings for member search purposes. One is “active” and the other is “pending.” Whether a property filed with the MLS is or should be carried as active or pending depends on the MLS rules. Parties cannot change these rules by contract. Brokers cannot change the rules either. It follows that whether a short sale is carried as “active” or “pending” is decided by the MLS, not the parties or individual brokers.
Some multiple listing services allow members to carry short sale listings as “active” until the short sale contingency is removed. Others simply enforce existing rules and carry short sales as “pending.” One way tends to favor sellers and lenders, the other buyers. Which is “best” is a political issue to be resolved by MLS rule.
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