It's not too late to influence Congress — Act now!

Legal FAQs for REALTORS® — Contracts and Forms
Short Sales

Translate this page

Legal disclaimer

Should the second offer not be accepted by the seller until the lender has an opportunity to either accept or reject the first contract? (updated May 23, 2008)

Again, the seller may be subject to certain requirements of the lender about which a real estate licensee should be careful not to advise his client. Instead, this question should be directed by the seller to the seller's attorney.

Are the seller and listing broker obligated to submit the second offer or back-up contract to the lender though the lender has not yet accepted or declined the first contract? (updated May 23, 2008)

This question depends on the relationship between the seller and the seller's lender. As a real estate licensee, you should be careful not to advise the seller on this relationship; encourage your seller to seek the advice of an attorney.

If a sales contract is executed by a buyer and seller with a sales price of less than what the seller owes and the sale is subject to the lender's approval, what should the MLS status be reflected as? (updated May 23, 2008)

Each MLS enacts and enforces its own rules, so consult your MLS to discover if there is an answer that could be unique to that MLS. Generally speaking, the status should be "pending." Any time a contract is executed on a listing, the MLS status should be changed to "pending." Remember, even though the sale is subject to lender approval, once the buyer and seller execute the contract, it is effective.

I’m a broker with a sales contract that’s been executed by the buyer and my seller. The sale is subject to the lender’s approval. Was the contract effective at execution, or will it be effective when the seller obtains lender approval? (Updated Jan. 18, 2017)

The contract was effective at execution. Even though the sale is subject to the approval of the lender, there is still a contract between the buyer and the seller. The effectiveness of the contract is not subject to lender approval, so the effective date should be filled in as with all contracts.

The Short Sale Addendum (TAR 1918) should always be attached to the contract in this situation to protect both the buyer and the seller because there is a contractual agreement between the parties where each has certain performance requirements and because the seller's ability to perform under the contract is subject to the lender’s approval. The addendum makes it clear that the contract is binding upon execution by the seller and the buyer, and that the earnest money and option fee must be paid as provided in the contract.

Are listing agents permitted to list a property in MLS for less than what is owed by the seller in an attempt to entice offers, even though the seller cannot accept full-price offers due to the his inability to cover the difference between the full price offer and the amount owed on the property? (updated May 23, 2008)

There are two factors to consider. First, the seller has agreed in the listing agreement between the seller and the listing agent to sell the property for the stated listing price. Technically speaking, if a ready, willing, and able buyer presents an offer for the listing price as advertised in the MLS and the seller refuses or is unable to accept the offer because the seller cannot cover the difference, the listing broker's fee has been earned and is payable. Second, REALTOR® members are obligated to abide by Article 12 of the Code of Ethics, which requires REALTORS® to be honest and truthful in their communications and to at all times present a true picture in their advertisements. It is perfectly foreseeable that a hearing panel could find a member in violation of the code if that member advertises a listing price in the MLS with the full knowledge and understanding that the seller is unable to accept offers at that price. NAR will soon be considering whether to adopt new rules that would better describe how the status of short-sale properties in REALTOR®-affiliated MLSs should be disclosed.

If a higher offer from another prospective buyer is received after a short-sale contract has been accepted by the seller but before the lender approves the first contract, should the second offer be accepted by the seller using the backup addendum? (updated May 23, 2008)

Yes, if the seller chooses to accept a back-up offer on the property, the seller should attach the back-up addendum in addition to the short-sale addendum.

Doesn't presenting the second offer to the lender in this manner place the lender's interests above those of the seller? (updated May 23, 2008)

As long as the seller has given the listing broker the instruction to present offers directly to the lender, the listing broker is shielded from liability from the seller.

By presenting a second offer to a lender prior to the lender making a decision on a first contract, is the listing broker compromising his fiduciary duty to the seller because the seller's negotiating position with the lender has been damaged? (updated May 23, 2008)

A listing broker should always act on the instructions of the seller that fall within the scope of the agency relationship between the seller and broker. A listing broker should not present offers to a lender unless the seller instructs the broker to do so. If the seller instructs the listing broker to present offers to the lender, the listing broker has not breached the fiduciary duty that is owed to the seller; rather, the listing broker is following the instructions of the client.

Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on Any legal or other information found here, on, or at other sites to which we link, should be verified before it is relied upon.

advertise with us