After months working on a deal, delayed because the Appraisal came in $40k less & the new price has not yet been approved the buyer does not want to sign the extension (I have the listing). We are currently out of contract. I believe I don't need a cancelation to contract since we are not under contract, is this correct:
How should I proceed? We still don't have the approved price, the new offer will be cash (I have someone lined up). Should I put it on Back Up on the MLS as of now, using a lower price or keep it at same price? Does Wells start the process again from the begining or will they work with my back up right away?
Thanks.

Only change the price in the MLS if the owner wants you to lower the price. The owner is still in control, the lender just approves a discounted payoff.

If the buyer doesn't sign an extension the deal is dead. Move to the next best offer, put it as pending in the MLS and submit the offer to Wells. Wells has been very nice lately and I've never had a problem submitting back ups.

Wells Fargo (portfolio) may accept appraised value if appraisal/financing is with Wells.

If Wells had already issued an approval to participate then the process will be very quick, if not you may have to go back to square one. The other deal is dead and you should be free to submit the new offer to Wells as soon as you receive it. Make sure you are continuing to send Wells any updated financial data on your seller (monthly bank statements, pay stubs, etc.). You also need to make sure that your client is still maintaining the property and keeping on the utilities and water.

We submitted the new offer which is $20k higher than the appraised value, cash, no inspection nor appraisal and Wells wants everything submitted thru equator! The previous was not submitted thru equator. I'm not sure how this will delay the closing. I'm so upset!!! I thought they would just work on the new offer and not have to start again.