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What Does Active Short Sale Contingent Mean?


Woman with laptop computer looking at active short contingent homes online

Active short contingent status on a listing does not mean the home is still available for sale.

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Question: What Does Active Short Sale Contingent Mean?
A reader asks: "In looking through short sale listings online, I have noticed that some of those listings say "active short sale contingent." Does this mean that the bank has approved the short sale but nobody has made an offer yet? What does active short sale contingent mean?"
Answer: You're not alone with that question. Many real estate agents don't know what active short sale contingent means, either. That's because some agents avoid short sales like the plague and refuse to show those listings to their buyers.

Multiple Listing Services and Active Short Sale Contingent Status

MLS conglomerates around the country have adopted a variety of status terms to describe listings. Some of these systems don't differentiate among short sale listings. I wouldn't be surprised to find isolated incidences where a short sale is not defined at all in the status.

In the MLS I use in northern California, once a seller has accepted a short sale offer, that offer is placed into a status called "active short contingent." It's supposed to let other agents know that the home is basically no longer for sale because an offer has been accepted. It does not mean, however, that the bank has issued short sale approval. The accepted short sale offer is simply contingent on the bank's approval.

Because this status confuses buyers and agents alike, my MLS has changed its procedures in the fall of 2012 to input these types of short sales to "pending short lender approval." The homes left in MLS in Active Short Contingent status will be only those in which the seller is actively looking for backup offers.

How Do Active Short Sale Contingents Work?

I sometimes list a few of my Sacramento short sales below market value, much to the chagrin of some buyer's agents. These agents are often vexed because they have a hard time figuring out how much the home is actually worth and don't know how much their buyers may need to offer. But this practice often brings multiple offers, which tend to result in a much higher sales price for the seller. Here is how it works:

  • Buyers submit offers that generally contain a 3-day window, during which time, the seller can pick and choose among the offers.

  • The seller selects the best offer, which isn't necessarily the highest offer, and signs it.

  • Because buyers sometimes don't want to wait for short sale approval, the seller may accept one or more back-up offers as insurance.

  • The accepted offer is submitted to the bank for approval.

  • At the seller's discretion, and providing the contract does not contain verbiage that prohibits it, the seller may direct the agent to send back-up offers to the bank as well.

This means that by the time you spot an active short sale contingent on Realtor.com or your agent's website, the process is most likely well underway. But there is always a chance the accepted contract could fall apart.

Can You Make an Offer on an Active Short Sale Contingent?

You have nothing to lose by submitting an offer on an active short sale contingent listing. That's because some buyers write many offers on other homes, even though that practice is frowned upon by lawyers and may result in legal ramifications. When another offer gets accepted for these types of buyers, the buyers then withdraw their outstanding contingent offers.

If the buyer walks away, the agent will then generally call the buyer's agent whose buyer is in back-up position. But it doesn't mean a buyer in this position will be any closer to short sale approval. Some banks make sellers start over when a new buyer enters the process.

If the offer you submitted is behind the back-up offers, you might not stand much of a chance to buy that short sale. Your second best strategy is to be in the first back-up position. Your optimum position and, of course, best strategic move is to be the accepted offer.

Unless my buyers have nothing better to do than to wait around to see if an active short contingent offer falls apart, I advise them to seek out only active short sales and to ignore the active short contingents. I'd rather they wait to see if the home comes back on the market as an approved short sale and snatch it then. Still, it might be worth it to call the listing agent to check on the status. That active short contingent or pending short lender approval home could be ready to go back on the market.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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