Short Sale Paperwork: Listing Agreement, MLS Remarks, and Offer Terms

Jerad Larkin
23 hours ago
10 min read

How should a short sale listing agreement be written in Colorado? Use a one year listing period, do not discount commission, include the additional provisions language allowing the seller to withdraw, and attach the short sale listing addendum. Then define SSA in every contract deadline.

Most of what kills a short sale is not the negotiation. It is paperwork written for a normal transaction, applied to a transaction that is not normal.

I took notes through a three hour CE class taught by a negotiator with roughly 1,500 short sales behind her, and a solid chunk of it was her walking through specific paperwork mistakes she has watched agents make over and over. This post is that section, organized.

None of this is legal advice, and your broker and your MLS have the final word on your forms. But these are the specific decisions that separate a file that closes from one that falls apart at month five.

The Listing Agreement

Go a full year

This scares people. Nobody wants to imagine working a listing for twelve months.

Here is the scenario you are protecting against, and it is not hypothetical. You take a four month listing. You get an offer in month one. Things move. You are five months in, the approval letter is about to land, and your listing agreement expires.

Now everything stops. You are held up from closing a deal you have already earned, over a date on a form.

Because a short sale can run through multiple buyers, six months should be your absolute floor and a year is the right default. Frame it honestly with the seller: I am not expecting this to take a year. I just do not want this expiring in the middle of the bank conversation.

Do not discount your commission

Banks will generally allow 6% split between both sides. Take it.

The mistake here comes from a good instinct. An agent is trying to help someone they know, or trying to get the seller to break even, so they cut their commission to 1% or 2% early. Then the property turns into a short sale anyway, everything gets sent to the bank, and the settlement statement shows 1%.

The bank is not going to volunteer that you should be paid more.

If the listing started as a normal sale and became a short sale, redo the listing agreement and reset the commission before you submit anything.

And there is a practical reason beyond the obvious one. At the end of nearly every short sale there is a small gap, a few hundred dollars for a water escrow or an HOA shortfall, that somebody has to absorb. It is common for the agents to cover it. You want room in your number for that.

Include the withdrawal language

Put additional provisions language in that allows the seller out if their situation changes. FHA specifically wants to see it. Here is the language straight off her slide, word for word:

"Seller may cancel this Agreement prior to the ending date of the listing period without advance notice to the Broker, and without payment of a commission or any other consideration if the property is conveyed to the mortgage insurer or the mortgage holder."

Run it past your broker before you use it, but that is the wording FHA is looking for.

The reasoning goes back to fraud in the last cycle. The scenario is: seller signs a listing agreement, then unexpectedly comes into money and can catch up and keep the house, and the listing agent holds them to the agreement. Most of us would never do that. The bank does not know that about you, so they want the language.

Attach the short sale listing addendum

Colorado has one. There is also a separate short sale addendum that attaches to the contract once you are under contract. Both live in your CTM forms.

The MLS Listing

Three things, and all three matter.

1. Mark the short sale field. In REcolorado it shows up as SSA Signed by Seller. Check it.

2. Broker remarks must say sold as is.

Explain this to yourself so you can explain it to a buyer's agent. The seller has no money, that is the entire premise of the transaction. And the bank does not own the property, so the bank legally cannot make repairs. There is nobody in the transaction who is able to fix anything.

This does not mean a buyer cannot inspect. They can inspect and they can terminate on inspection. It means there will be no repairs and no repair credits.

3. Broker remarks must say subject to third party lien holder approval.

Plain and non negotiable. Every buyer's agent needs to know going in.

Bonus if you have it: if you have an FHA Approval to Participate letter in hand, say so in the broker remarks. Something like "ATP in hand, listed at bank approved net." What buyers hate about short sales is open ended waiting, and that line tells them the waiting is largely over.

Receiving Offers

Only one contract goes to the bank

This is the most common misunderstanding, and it comes from confusing short sales with bank owned properties.

On a bank owned property, everyone submits, the REO agent forwards them all, and the bank picks. That is not what happens here. The bank does not own this property. Your seller does. So your seller receives all offers, your seller chooses, and exactly one contract goes to the lender.

Which means you use ordinary agent judgment.

How to pick

Cash is not automatically king. The bank wants to get near fair market value. A low cash offer does not solve their problem.
Think about condition. If the property has real issues, an FHA offer may be a problem, because FHA will require repairs and nobody can pay for them. Sometimes it is worth not accepting FHA offers at all. If you find that out mid deal through an inspection, you may have to relist as conventional or cash.
Weigh patience heavily. A buyer who says "I need an answer in ten days or I move on" is worth less than a buyer who will wait. That is not a small preference. It is one of the top two or three factors.
Look at earnest money. You want skin in the game. In the last cycle, investors spray fired offers with no earnest money, got one approved, and then walked because they never really wanted it.

Contract Dates: The SSA System

This is the part with the specific mechanics.

Define SSA in additional provisions

Here is the exact language, verbatim off her slide. Put all three lines in additional provisions:

"The buyer is aware that the property is being sold AS IS" "SSA is defined as Short Sale Acceptance by all 3rd party lien holders" "MEC is defined as Mutually executed contract"

That phrase all third party lien holders is doing real work. You may have a first, a second, and a judgment holder, and you need every one of them. Defining it explicitly means there is no argument later about when the clock actually started.

Two deadlines get hard dates. Everything else runs on SSA.

Hard date 1: Earnest money. They put real money up, and you send an earnest money receipt to the bank. You can write it as MEC plus two days if you do not know exactly when signatures land.

Hard date 2: Inspection. This is the one people fight you on, and it is the one worth fighting for.

Here is why. Picture waiting three months for approval. The approval letter finally lands. Two days later the buyer does their inspection, finds a roof problem, and walks. You needed that information in week one.

It benefits both sides:

For the seller: you learn immediately whether you have a real buyer who wants this property in as is condition.
For the buyer: they find out if they actually want the house before investing months of waiting.
For the deal: if the inspection turns up a roof or sewer issue, you now have documentation to bring to the bank's appraiser. That is direct leverage on the value, which is the number that decides everything.

Will some buyers push back on paying for an inspection before approval? Yes. Should you lose an offer over it if you have other options? No. But make the argument, because it is genuinely in their interest too.

Her slide says request the inspection complete within 14 days. In practice she pushes for it inside the first week.

Some agents also put a hard date on title work. That is fine.

Everything else is SSA plus days. Closing is SSA plus 30. Appraisal deadline is SSA plus whatever. That way your deadlines are anchored to the event that actually controls the timeline.

The short sale addendum dates

Colorado's short sale addendum has dates in it. Two things to know.

Set the initial submission date at least 3 days after MEC. After a contract is signed, title has to prepare a settlement statement and a few other things before anything can go to the bank. That takes a couple of days. Do not write a deadline you cannot meet.

Push the short sale acceptance deadline to 60 days if the buyer will agree.

Here is the honest reality: the bank does not look at this form. They are not going to see a 15 day deadline and hurry. All a short deadline does is create an exit for the buyer every two weeks and generate a stack of amendments for everyone else.

Some buyers get nervous at 60 days. Do not lose a buyer over it. But make the ask, and explain that the alternative is signing an amendment every two weeks for the same result.

And be honest with yourself about what this form does: a buyer can walk from a short sale at any time, for any reason, before the bank approves it. The addendum dates do not change that. Which is why the real tool for keeping a buyer is over communication, not paperwork.

After the Approval Letter

The approval letter arrives and it feels like the finish line. It is not, quite.

Review it yourself first. Check the buyer's name and the sales price. Approval letters have shown up with an old buyer or an old price on them. Check the close by date, usually 30 days, sometimes 45. Check the deadline for the final settlement statement submission, typically 48 to 72 hours before closing. Check the commission. And check for the deficiency release language.

Then review it with your seller and get something signed. They do not technically need to sign until closing, but you want a signature or an email saying they agree to these terms. That agreement is what puts you officially under contract on a short sale. When you send that confirmation to the buyer's agent, that is the moment.

Then move fast, and push the buyer's lender.

This is the one I would underline. The most common reason short sales blow up at the end is that the buyer's lender treats it like a normal transaction. They anchor everything to the closing date and deliver clear to close at the last minute, the way they always do.

That does not work here. The final CD and settlement statement, both sides, have to be submitted to the short sale lender 48 to 72 hours before closing, and they have to approve it before you get a clear to close. So the buyer's lender needs to be finished three days early.

Tell the buyer's agent explicitly: I need clear to close and final numbers settled with title by this date, which is three days before we close. Say it when the approval letter lands, not the week of closing.

Then do an amend extend with real dates. Once you know the actual closing date, replace the SSA plus formulas with hard calendar dates. People genuinely get confused about what the SSA date was, whether it was the day the seller signed, the day the buyer's agent received it, or the day the lender got it. Just set real dates.

If you need an extension, it is about a 50/50 shot. And there is a specific reason it often gets denied: if the lender has been pushing the foreclosure date out, the approval letter's deadline may sit just before the new foreclosure date. Extending past it means paying the foreclosure attorney again. They will not want to.

Frequently Asked Questions

How long should a short sale listing agreement be in Colorado?

One year is the right default, with six months as an absolute minimum. Short sales frequently run through multiple buyers, and the worst outcome is a listing agreement expiring right as the approval letter arrives.

Can you submit multiple offers to the bank on a short sale?

No. Only one contract goes to the lender. Unlike a bank owned property, the seller still owns the home, so the seller reviews all offers and selects one using normal judgment. Patience and earnest money matter more than price alone.

What does SSA mean in a Colorado short sale contract?

SSA stands for short sale acceptance. It should be explicitly defined in additional provisions as acceptance by all third party lien holders, since there may be a first, a second, and judgment holders who all have to approve. Closing and other deadlines are then written as SSA plus a number of days.

Should the inspection happen before short sale approval?

Yes, whenever possible. An early inspection confirms the buyer wants the property as is, and any significant findings become documentation you can bring to the bank's appraiser to argue the value down. Waiting until after approval is how deals collapse at the finish line.

Can a buyer back out of a short sale before approval?

Yes, at any time and for any reason. The dates on the Colorado short sale addendum do not prevent it. Consistent communication with the buyer's agent is the only reliable way to keep a buyer engaged through a multi month process.

This post is part of a series I built from a three hour short sale CE class. The full walkthrough is here: Short Sales in Colorado: The Complete Guide for Real Estate Agents.

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