Buyer "working" on property in contract phase

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Hello:

Hello:

My husband and I were outbidded on a bank owned home that is next door to us.

The other buyer whose offer was accepted was at the house "working" on it to prepare for the bank appraiser who is coming this week so that they would have a better chance of securing financing on a very distressed home.

I emailed my agent about this and he said that if the bank or listing agent knew that this was happening, that there "would be hell to pay."
Since it is possible that they will secure financing to buy the house and potentially be our new neighbors, we do not want to make waves with them even though we are very upset that they outbid us. If the deal does not go through for this other buyer and the property comes back on the market, we are planning on bidding on it again,

If anyone can tell us if this is in fact inappropriate what the other buyer is doing and anyone has any suggestions on how to handle this diplomatically, it would be greatly appreciated.

Thank you in advance!