The Meaning of Active Under Contract Explained
What is Active Under Contract?
In some places, active under contract indicates that a contract has been signed but is contingent on certain conditions being met before the sale is finalized.
In other locations, the sale may be referred to as being contingent in the multiple listing service (MLS).
You need to know some things when you are considering a property that is active under contract, and we will clarify them here.
Before finalizing the deal, certain conditions (like a completed property inspection) must take place. This will indicate to the purchaser where money has to be spent first on an old home. It might mean negotiating the price down a bit before moving forward if there are expensive issues to correct.
The seller has agreed to accept a contingent offer from the purchaser.
There is always a chance that the deal may not proceed.
During this time, the seller can still accept backup offers from other interested parties.
If you are interested in a property that is active under contract, stay in touch with the selling agent, and then you will be ready to act if the deal falls apart because of contingencies not being met.
Active under contract is different than the meaning of pending in real estate, which typically indicates that all of the buyer’s contingencies have been satisfied.
Homes are often marked in the multiple listing service as “pending” when a real estate agent is confident closing the sale.
Contingencies When a House is Under Contract
A buyer will add real estate contingencies to the agreement to protect them legally and financially, as the sale isn’t finished until the contract is finalized.
This can add some time to the process and will allow the buyer to clear up a few pending issues, like,
HOME INSPECTIONS: to check for expensive hidden building issues or environmental hazards in the house. There can be other various inspections as well including a property survey, radon, mold, and septic testing if there is no public sewer available. Anything serious found may lead to the sale not completing.
FINANCING: Allowing the purchaser to secure their mortgage before the home sale closes. If the lender won’t fund the loan, the sale falls through.
HOME SALE: This contingency allows buyers to escape the purchase if they don’t find a buyer for their existing home.
APPRAISAL: This contingency requires a successful valuation. The value can’t be lower than the purchase price. If it comes in lower, the buyer can negotiate a lower price, cancel the contract, or come up with the difference in the form of a larger down payment. Here are some essential things to know about real estate appraisals.
It is not uncommon in real estate markets where home values are rising quickly for appraisal problems. Sometimes the data the appraiser is working with has not caught up with the actual market.
Other times an appraiser could make a mistake that causes the valuation to come in lower than it should. Every situation is different, so whether you are buying or selling, you’ll need to analyze the situation and make an appropriate decision.
Sometimes a buyer has just overpaid for a home, and the appraiser is doing them a favor by providing a lower evaluation than the purchase price.
Active Under Contract vs. Pending
These are two different things in home sales. Both are used when a seller has accepted the buyer’s offer, meaning that both parties are under contract.
Active under contract indicates that some contingencies are outstanding. Pending means that the sale is closer to closing.
However, this is not always clear, and definitions can vary as set out by Individual Multiple listing services that are part of a geographical area.
Active under contract means the seller can continue showing the house and accepting an offer in some areas. Not all areas have active under contract status, and some may move from ‘active’ to pending entirely, skipping active under contract.
Making an Offer on a House Under Contract
It is possible to make a backup offer on a house while it is active under contract, but stay clear-headed and don’t become emotionally invested in purchasing the property. The reality is that if the contingencies are met, the sale will go through, leaving you on the sidelines.
So the best advice from the experts is to keep looking at any other suitable property during the active under contract period even if you have put in a backup offer.
If you really want the home, stay in touch with the agent and ask them to notify you if things change and the deal looks as though it will fail to proceed. If that happens, you will be ready without putting any further emotional investment into the home unless you can be certain of getting it.
In some cases, you can be lucky, but your good luck is often someone else’s bad luck, but that is life! Remember, an old home may be charming, but if it has many expensive repairs to be carried out, it may not be cost-effective, especially if you have put all your hard-earned money into making the purchase.
But it also can mean that everyone else could back out of the deal, and you are left with the house, so weigh that up really carefully as it will be a lot more work than just a weekend with a ‘paintbrush.’
You may find that you have to live with a 1950s kitchen and bathroom for the next five years, and that can be tough!
Homes Come Back on The Market All The Time
Patience is a virtue and it could really help you when trying to buy a home!
Home sales do fall apart for numerous reasons from title issues, to undiscovered easements, to a buyer running into financial problems.
Keep your eye on the ball because you might still end up purchasing your dream home.
The Bottom Line on Under Contract Homes
Becoming emotionally invested in a home that’s active under contract isn’t the worst thing that can happen, and if you are a risk-taker, you will know that it may not come off.
But go back to the meaning of the phrase “active under contract.” ‘The seller has already accepted an offer and is waiting out the contingencies until they are met. The reality is that they probably will be met and the property sold.
When you find yourself in this situation, it can be tough. To divert yourself from thinking about it, set yourself a target of 5 houses to inspect in surrounding suburbs every week. Doing so is a helpful diversion and may land you a home you like even better.
It will keep you busy while you wait it out, and when you find that the house you really wanted has sold, there will be a runner-up to take its place.
Just be careful not to write multiple offers on different properties and wind up in a bit of a mess.
By Bill Gassett for Realty Biz News