Last updated on August 3rd, 2024 at 08:24 am
Definition of Active Under Contract
When navigating the real estate market, it’s essential to understand the various terms and stages associated with a property’s status.
One such term that often raises questions is “Active Under Contract.”
We will explore the meaning of this real estate term, its significance for buyers, sellers, and real estate professionals, and why it’s crucial to grasp its implications.
“Active Under Contract” refers to a specific stage in the process of purchasing a property.
When a home is labeled as “Active Under Contract” in the Multiple Listing Service (MLS), it indicates that the seller has accepted an offer from a potential buyer and has entered into a contractual agreement.
However, the transaction is still in progress, and certain contingencies or conditions need to be fulfilled before the sale is finalized.
Implications for Buyers
For potential buyers, this status can create a sense of urgency.
It means that while the property is under contract, it is not yet considered “Pending Sale.”
In other words, there is still a chance for an interested buyer to submit a backup offer in case the current buyer cannot fulfill the contractual obligations.
Therefore, if you come across a property labeled as “Active Under Contract” that matches your criteria, it might be a good idea to notify your buyer’s agent of your interest and potentially submit a backup offer.
Significance for Sellers
For sellers, the “Active Under Contract” status signifies that they have successfully secured a contractual offer for their property.
It is a pivotal step towards completing the sale, but it does not guarantee its finalization.
During this stage, the home inspection, appraisal contingency, or other contingencies may need to be resolved within a specified timeframe.
Therefore, sellers need to be prepared to address any potential issues that emerge during this period to ensure the successful conclusion of the sale.
Remember, real estate agents play a crucial role in navigating the complexities surrounding the “Active Under Contract” status.
It is their responsibility to guide and support both buyers and sellers during this stage.
Agents need to ensure that all contractual obligations are met within the designated timeline and keep all parties informed about the progress of the transaction.
Reasons for a Property to be Active Under Contract
Active under contract means the seller has accepted a contract from a potential buyer.
Acceptance of a Purchase Offer
Once a seller receives an offer from a potential buyer, they have the option to accept, reject, or negotiate the terms of the offer.
If the seller accepts the offer, the property is marked as “active under contract.”
This designation indicates that the seller has agreed to the terms outlined in the contractual offer, solidifying the buyer’s intention to purchase the property.
Contingency Period
During the buying process, most contracts include contingency periods to protect the buyer. These periods allow the buyer to investigate the property further and ensure it meets their expectations.
Common contingencies include a home inspection, obtaining financing, and an appraisal contingency. Although some buyers will waive the inspection contingency, most don’t.
If the buyer finds any issues during these inspections or if the appraisal doesn’t meet the purchase price, they have the option to back out.
While the property is in the contingency period, it remains listed as “active under contract” to alert other potential buyers that there is a pending sale, but there are still aspects being negotiated and inspected.
Home Sale Contingency
In some cases, a buyer might make an offer on a new property while they still need to sell their current home. This situation is known as a home sale contingency.
When a property is labeled as “active under contract” due to a home sale contingency, it means that the buyer’s offer is contingent upon successfully selling their current home.
Sellers and other interested buyers should take note of this, as the sale of the property is dependent on the successful closure of the buyer’s existing home sale.
Multiple Offers and Backup Offers
In a competitive real estate market, it is not uncommon for sellers to receive multiple offers on their property.
When this happens, the property may be labeled as ‘active under contract’ to indicate that the seller has accepted an offer but is still considering other offers as backup options in case the primary offer falls through.
This status allows sellers to continue marketing the property and entertaining other offers, giving them more options and potentially securing a higher selling price.
How contingencies can affect sale
These contingencies can include factors such as the completion of a satisfactory home inspection, obtaining a mortgage approval, or the successful sale of the buyer’s current home, among others.
Until these contingencies are satisfied, the sale of the property is not yet guaranteed, and the listing remains in the active under contract status.
Limited Availability for New offers
During the active under contract phase, the property is typically off the market and not open to new offers.
Sellers and listing agents respect the initial buyer’s offer and engage with them to fulfill the necessary requirements to move towards closing.
However, interested buyers can still express their interest and submit backup offers.
A backup offer is a secondary offer that becomes primary in case the current under contract falls through, providing a potential buyer with an alternative opportunity.
Visibility on Multiple Listing Services
Active under contract listings are usually visible to the public on multiple listing services (MLS) and various real estate websites.
This transparency allows potential buyers to be aware of the property’s status and potentially express their interest through their buyer’s agent or the listing agent.
It also provides real estate professionals with the necessary information to guide their clients and facilitate transactions.
Benefits for Buyers
Just because you might be a buyer who didn’t secure the property, it doesn’t mean that you don’t benefit.
Opportunity for Backup Offers:
Being aware of a property marked as active under contract gives potential buyers the chance to submit backup offers.
In the event that the current buyer fails to close the deal, having a backup offer increases the chances of securing the property.
Insights Into the Market:
Active under contract status reveals that there is already a buyer interested in the property.
This information provides insight into the demand and competition for homes in the market.
It allows buyers to gauge the level of interest and make an informed decision accordingly.
Status Updates and Contingency Period:
Monitoring properties marked as active under contract helps buyers keep track of the progress of their potential dream house.
It allows buyers to stay informed about any changes or updates during the contingency period.
This helps buyers navigate through the stages of the home buying process, such as the home inspection, appraisal, financing, and other contingencies.
Avoiding Wasted Time and Effort:
Knowing that a property is active under contract can save buyers from wasting time and effort on a property that is likely to be sold soon.
Instead, buyers can focus their attention on other available listings and maximize their chances of finding the right home.
Implications for Sellers
For sellers, having their property marked as active under contract can provide a sense of assurance and confidence in the sale process.
It indicates that there is a potential buyer who has already expressed a strong interest in the property and is working towards completing the transaction.
This can alleviate some of the uncertainty and stress that comes with selling a home and give sellers peace of mind.
Potential for Backup Offers:
While the property is under contract, sellers may still consider accepting backup offers.
Backup offers can be beneficial for sellers as they provide a backup plan and potentially increase the likelihood of a successful sale.
Efficient Use of Time and Resources:
Once a property is under contract, sellers can focus their attention on meeting the contingencies and conditions outlined in the contract.
This allows them to utilize their time and resources more efficiently, knowing that they are working towards a specific closing date.
It also streamlines the selling process, reducing the need for constant showings and marketing efforts while the property is off the market.
Role of Real Estate Professionals
Real estate professionals play a crucial role in navigating the complexities of the housing market and ensuring a smooth transaction for all parties involved.
Expert Contract Negotiation
Real estate professionals excel in contract negotiation, using their expertise to secure the best terms and conditions for their clients.
They ensure that all parties involved in the transaction thoroughly understand the terms outlined in the real estate contract.
From price negotiations to contingency periods, the real estate agent’s role is to ensure that the contract meets the needs and interests of their clients, while also complying with legal and ethical standards.
They provide guidance, explain the implications of each clause, and help their clients make informed decisions throughout the process.
Assistance with Contingencies
With their expertise, they guide buyers through the process, explaining their rights and responsibilities during the contingency period and helping them make informed decisions.
Managing Multiple Offers and Backup Offers
In a competitive real estate market, multiple offers on a property are not uncommon.
Real estate professionals help sellers manage multiple offers by presenting them in an organized and unbiased manner.
They carefully analyze and compare each offer, considering factors such as purchase price, contingencies, financing options, and closing timelines.
They also assist sellers in evaluating backup offers, which can be important if the primary offer falls through.
Potential Risks and Challenges
Contingency Period: One of the key risks involved in an active under contract situation is the contingency period.
This is the time specified in the contract during which certain conditions must be met for the transaction to proceed smoothly.
Failure to meet these contingencies can result in a terminated contract or renegotiation of terms.
Backup Offers: Although a property may be under contract, there is still a possibility of potential buyers submitting backup offers.
A backup offer is a secondary offer that is accepted by the seller in the event that the primary buyer cannot fulfill their obligations.
As a buyer’s agent, it is important to keep your client informed about the presence of backup offers to manage their expectations and explore alternative options if necessary.
Buyer’s Financing: The financing process can present challenges during an active under contract phase.
Buyers may face difficulties securing a loan due to changes in their financial situation, credit issues, or appraisal discrepancies.
These hurdles can lead to delays or even the cancellation of the sale.
Encouraging thorough pre-approval and continuous communication with lenders can help mitigate these potential risks.
Home Sale Contingency: In some cases, buyers may have a home sale contingency, which means that the success of their purchase is dependent on the sale of their current home.
This can introduce uncertainties and complexities into the transaction, as it involves coordinating the sale of two properties simultaneously.
Listing Status and Marketing: From a seller’s perspective, the listing status of a property can impact its visibility and attractiveness to prospective buyers. While “active under contract” indicates that a property is in the final stages of the transaction, it may deter new potential buyers who perceive it as unavailable.
Balancing the marketing efforts to continue generating interest while keeping interested buyers informed of the contract status is vital for a smooth transaction.
Tips for a Successful Transaction
Here are the factors that can help a sale go through successfully.
Communicate Clearly and Promptly:
Maintain open lines of communication with all parties involved, including the buyer, seller, and their respective agents.
Respond to inquiries, requests, and questions in a timely manner to avoid any potential delays or misunderstandings.
Meet Deadlines and Contingencies:
Understand the various contingencies and deadlines outlined in the contract, such as the inspection period, financing approval, or appraisal contingency.
Adhere to these deadlines and ensure that all necessary tasks, such as home inspections or loan applications, are completed within the specified timeframes.
Work Closely with Your Real Estate Agent:
Rely on the expertise and guidance of your real estate agent throughout the active under contract process.
Your agent can help navigate any challenges that may arise, negotiate repairs or amendments, and provide valuable insights to protect your interests.
Be Prepared for the Unexpected:
Understand that unforeseen circumstances can occur during the active under contract phase.
It’s essential to remain flexible and mentally prepared to handle any challenges that may arise with a level-headed approach.
Prepare for the Closing Process:
Familiarize yourself with the closing process and the required documentation.
Conduct Due Diligence:
Take advantage of the active under contract period to conduct thorough due diligence on the property.
This may involve hiring professionals for inspections, reviewing property disclosures, researching relevant neighborhood information, and verifying property boundaries and legal matters.
Stay Informed:
Stay updated on the progress and status of the active under contract transaction.
Regularly communicate with your agent to receive updates on any changes or developments that may impact the transaction.
Final Thoughts
Understanding the meaning of “active under contract” is crucial for buyers, sellers, and real estate professionals.
This term represents a property that is under contract but still open for other potential offers. It can impact negotiations, timelines, and overall transaction strategies.