Expert: Todd C. Menard - 6/25/2008

Question
Hi Todd,

I live in the Chandler area.  I have already been pre-approved by several banks for FHA loans and have excellent credit.  I am willing to pay down payment, but need help with closing costs.  I have made an offer on a short sale.  I was the first offer, but now there is another.  I am offering list price and my down payment and am only asking for closing.  It seems like I may not get this home as the other offer is similar.  The seller's realtor will not tell us anything else and has been very hard to get a hold of.  Originally he had told us he would let us know about any other offers.  My agent said he did not tell us about the other offer until she finally tracked him down.  My agent says he will not return her calls.  I went through something similar with another home I wanted.  I am perplexed as to what I am doing wrong.  Everyone says it is hard to find buyers that are pre-qualified right now, etc., but I have been pre-approved, have good credit, have the down payment, and am having the hardest time having my offer accepted.  It is very discouraging and I do not know if I should change my realtor, make higher offers, or what I have to do to have an accepted offer.  Do you think I should call the seller's agent and talk to him personally or call their lender and talk directly with them.  I do not even know how to find out who their lender is.  Is there any way to do that?  I am starting to even doubt that my agent is doing what she said she is.  Please help!

Answer
Hello Jenny - There are multiple issues here. First, short sales require patience by the buyer. The term 'pre-approved' means a prospective borrower has received an "approval with stipulations" from a lender on a previous property (fell out of escrow) and the funding is subject to the substitution of a new property address, appraisal, and satisfaction of the stipulations. In relation to an offer a buyer who possessed this would be known as an "able" buyer. If there are other offers on the property the other prospective buyers may not be pre-approved. Even if they include offers with a higher sales price that does not necessarily mean they are "able" to obtain financing. The seller's agent is not obligated to tell your agent about offers on the property (accepted contracts yes). According to the National Association of REALTORS Code of Ethics Article 1 S.O.P. 1-15 which indicates the seller's agent is not authorized to disclose the existence of offers on the property with our written permission from the seller authorizing the agent to do so. It would seem there is a benefit to the seller if they were to release that information as it may promote a buyer to offer a higher amount than if there weren't other offers... and since there is no proof there are... might a buyer offer more than necessary? Now lets discuss the listing side. In a short sale scenario the listing agent is usually instructed by the lender to gather  a number of offers and submit them together, or, select the best offer and submit that offer to the bank. The loss mitigation department handles the short sale requests and they obviously are inundated with offers. So the offers that comply to the lenders short sale guidelines and process are looked at first. The others sit in a pile and typically never get reviewed at all. The buyers usually withdraw the offers anyway as a result of a lack of communication. The "time is of the essence" in the contract begins when the contract is accepted not when the offer is presented. It becomes effective at the time of seller acceptance or a meeting of the minds (in the example of a counter offer). There is no contractual responsibility to the terms stated therein until this occurs. The only wording that may indicate a "time is of the essence" response is the boilerplate under the heading "time for acceptance". In the event the seller does not reply by the date and time indicated the offer is "withdrawn". This wording can be located immediately following the 'time for acceptance' in the AAR Real Estate Purchase Contract 05/05. If the seller takes longer than this to reply the contract is considered 'withdrawn'. A buyer can continue to volley the negotiations if a counter offer or bank addendum is received after this date... which appears to be the norm in a short sale process. The benefit of acquiring a property through a short sale is to own a home at a sales price below current market value. This is a buyer benefit obviously. To participate in this 'opportunity' you need to understand communication is limited and due diligence is required. Of course, if the seller is using an agent with little short sale experience the lender may not even reply if the listing agent hasn't performed the required due diligence as a short sale seller representative. Article 16 of the Code of Ethics also indicates that your REALTOR is obligated to submit all correspondence between buyer and seller directly between the buyer and seller representatives. It is possible however that the firms designated brokers could have a motivating effect on the communication outcome. I recommend discussing this option with your REALTOR. Please remember, I would imagine your REALTOR is equally frustrated with the lack of communication and doing everything possible to get you an answer. More than likely, the lack of communication issue is caused by either the seller's lender or possibly a listing agent who may be quite experienced in typical seller representation but has limited experience in short sales. When a Buyer does not want to play the short sale game anymore they can withdraw their offer at anytime prior to seller acceptance. There is no way to motivate the lender to reply unfortunately. I hope this has helped you understand better the process of dealing with a short sale.