If I offered to pay cash of a listing price-bank owned home but realtor says the bank owned house is waiting for a higher offer, is this legal?

Well your "offer" is only an offer until it is accepted. Then it becomes a contract. That's how it works in real estate. Your situation is not uncommon. in the "hay day" of real estate skyrocketing prices, it was very comon for buyers to offer more than full price. offering full price, and cash does not automatically get you the contract. Here's the secret: You should resubmit your offer to say $1,000 above highest offer up to XX price" (and make the price ceiling maybe 10,000 or 15,000 higher)--if they don't get another offer higher, or slightly higher than your original, you still win!   THAT will get you the property at the price you can live with.