Introduction
If you’re a first-time home buyer, then chances are that you are using real estate listings to conduct your house search. You could be using one or more of the following real estate listings: Redfin, Zillow, Trulia, Realtor, Homes, and the Multiple Listing Service (MLS). On these platforms, houses can have various statuses, ranging from active to active under contract, under contract to pending, contingent to withdrawn.
Understanding the different property statuses is essential for navigating the home buying process effectively. In this blog post, we will explore the common property statuses you may encounter on real estate listings and delve into what each status means. We will focus on the significance of the “Active Under Contract” status, why it is crucial for first-time home buyers to understand and provide valuable tips for evaluating properties labeled as such.
Property Status on Real Estate Listings
Houses on real estate listings can have various statuses from active to active under contract, under contract to pending, contingent to withdrawn. Here is a list of some common statuses you may come across:
- Active: This status indicates that the property is currently available for sale. It is actively being marketed, and potential buyers can schedule showings and submit offers.
- Under Contract: This status means that a seller has accepted an offer from a potential buyer, and a legally binding contract has been established between the two parties. The house is no longer actively available for sale, as the seller has committed to sell it to the buyer who made the accepted offer.
- Active Under Contract: This status means that the property is under contract, but it is still actively being marketed and shown to potential buyers. The seller is willing to consider backup offers in case the primary contract falls through.
- Pending: When a property is labeled as “Pending,” it means that the sale is in the final stages of completion. The contract has been accepted, and all contingencies have been met or waived. The property is no longer actively marketed, and the closing process is underway.
- Contingent: The “Contingent” status indicates that an offer has been accepted, but certain contingencies have not yet been fulfilled or waived. These contingencies can include inspections, appraisals, financing, or other conditions specified in the contract. The property remains under contract, and the sale is not yet final.
- Sold: Once the sale is complete, and all legal and financial obligations have been fulfilled, the property’s status is changed to “Sold.” This indicates that the property has been successfully transferred to the new owner.
- Withdrawn: If a property is withdrawn, it means that it has been removed from the market before a sale has taken place. This can occur due to various reasons, such as the seller changing their mind about selling or deciding to relist at a later time.
- Expired: When a listing expires, it means that the agreed-upon listing period has ended without a sale being completed. The property is no longer actively listed, but the seller may choose to relist it in the future.
- Off Market: “Off Market” indicates that the property is not currently available for sale and is not actively listed. It may be temporarily taken off the market for various reasons, such as renovations, repairs, or the seller’s personal circumstances.
It’s important to note that real estate listing statuses may vary depending on the specific MLS or region. It’s always advisable to consult with a real estate professional or access the local MLS to understand the specific statuses used in your area.
What Active Under Contract Means
Active Under Contract (AUC) means that a property is under contract but is still being actively marketed and shown to potential buyers. The seller is willing to consider backup offers in case the primary contract falls through.
- A potential buyer has made an offer.
- The seller has accepted the offer from the potential buyer.
- The Buyer and the Seller have agreed to the terms and conditions outlined in the contract.
- However, the property is not taken off market.
- The property may still be shown to other potential buyers.
- The seller is willing to consider backup offers.
It is important to note that any offers made during this phase are considered backup offers and will only be considered if the initial contract falls through.
Importance of Active Under Contract
Active Under Contract (AUC) is an important status for first-time home buyers to understand because it can affect the home buying process. Understanding this concept will help you:
- Make informed decisions in a timely manner.
- Increase your negotiating power.
- Ease the emotional stress of the home buying process.
While Active Under Contract “status” can work to your advantage, you will also recognize that there is also a possibility the property may not ultimately be available for purchase.
Working closely with a knowledgeable real estate agent is crucial during this phase, as they can provide valuable insights and guidance regarding the status of properties labeled as “Active Under Contract.” With proper research and with the right information, you will be able to:
- Weigh your options effectively.
- Determine if to make a backup offer.
- Position yourself in case the initial contract falls through, if you decide to make a backup offer.
Reasons Active and Also Under Contract
If you haven’t realized, I’d like to call to your attention that:
- Active Under Contract = Active + Under Contract.
What does this mean? It means that the Active Under Contract status combines elements of the Active status and of the Under Contract status.
Now, you’re probably wondering why a seller and a seller’s agent won’t just pick one or the other. Why would a seller have a house that is active while also under contract? While sellers can choose the Active Under Contract status for a variety of reasons—in my opinion—there is one main reason.
The main reason—in my humble opinion, especially in the current market—sellers choose to keep a house already under contract as active is because they believe there is a chance (high or low) of them getting a better offer than the one on the table. Keeping a house Active Under Contract reduces the risk of a seller holding on to a house longer than they would like. Here are some other detailed reasons:
- Backup Offers
- Contingency Considerations
Backup Offers
A house under contract and active under contract is in the process of being sold. It is not yet sold. And certain financial obligations and contingencies must be met before the sale of the property can be finalized. Houses under contract or active under contract can fall through and do fall through. This happens when those obligations and contingencies are not met.
When a house falls through, it needs to be put back on the market and it might delay how quickly a seller can sell her house.
A seller who is keen to sell her house as soon as possible will prefer to keep the house active under contract. With a backup offer, or many backup offers, in hand, the seller can quickly find and move on to another interested and ready potential buyer.
Having a backup offer reduces the seller’s risk of having to hold on to the house longer than they would like.
Contingency Consideration:
During the “Active Under Contract” phase, the buyer and seller are usually in the process of fulfilling contingencies specified in the contract. These contingencies may include tasks such as inspections, appraisals, or obtaining financing. Allowing showings during this time can be beneficial for sellers as it keeps them aware of potential interest from other buyers in case the current contract encounters difficulties or fails to proceed.
If a contingency isn’t met, it is important to note that either the buyer or the seller can terminate the contract and walk away. Should the potential buyer under contract choose to make the contingency process difficult for the seller, the seller can always terminate the contract, accordingly, and go with a buyer that will be easier to work through those contingencies with.
Contingency Period:
After accepting an offer, sellers often allow a specified period known as the contingency period. During this time, the buyer conducts inspections, obtains financing, or completes other tasks specified in the contract. The property remains labeled as “Active Under Contract” until these contingencies are fulfilled or waived.
You might find it shocking to learn that some buyers fail to perform all their contingencies within the contingency period. Should a buyer not perform all their obligations within the contingency period, the seller can choose to terminate the contract.
A seller who is keen to sell does not want to waste her time on a buyer that is not committed to making a purchase.
Inspection Contingencies:
Properties may be labeled as “Active Under Contract” due to inspection contingencies. After an offer is accepted, the buyer has the right to inspect the property for any potential issues. If inspections reveal significant problems, the buyer may request repairs or negotiate a reduction in price. During this process, the property maintains the “Active Under Contract” status until inspection-related negotiations are resolved.
There are certainly instances where a seller would not agree to making the repairs or acceding to a reduction in price of the house. If the seller views the buyer as being troublesome, because they can’t agree on who, when, and how the repairs should be made, the seller, or even the buyer can terminate the contract.
Appraisal Contingencies:
Another reason for a property to be labeled as “Active Under Contract” is an appraisal contingency. When a buyer seeks financing, the lender typically requires an appraisal to ensure the property’s value matches the loan amount. If the appraisal comes in lower than the agreed-upon purchase price, negotiations may take place to address the discrepancy. The property remains in the “Active Under Contract” status until the appraisal contingency is resolved.
Should the buyer and the seller disagree on the purchase price, based on the appraisal result, the buyer or the seller can terminate the contract.
Financing Contingencies:
Financing contingencies can lead to a property being labeled as “Active Under Contract.” Buyers often include this contingency to ensure they secure suitable financing for the purchase. If the buyer encounters challenges with loan approval or fails to secure satisfactory financing terms, the contract may be at risk of falling through. Until the financing contingency is resolved or waived, the property maintains the “Active Under Contract” status.
Should a buyer’s financing fall through, the seller will want to have a line of other buyers interested in the property.
Contingency Expiration:
In some cases, a property may be labeled as “Active Under Contract” due to a contingency expiration. If the buyer fails to fulfill or waive contingencies within the specified timeframe, the seller may choose to terminate the contract. This results in the property returning to an active status, making it available for other potential buyers.
Sale of Buyer’s Property Contingency:
In some cases, a buyer’s offer may be contingent upon the successful sale of their existing property. If the buyer fails to sell their property within the specified timeframe or encounters challenges in the selling process, the buyer can terminate the contract. This releases the property and allows the seller to consider other offers.
Failed Contract Negotiations:
Occasionally, properties may be labeled as “Active Under Contract” due to failed contract negotiations. Even after accepting an offer, if the buyer and seller cannot reach an agreement on the contract terms or contingencies, the contract may be terminated. The property returns to an active status, and the seller can consider other offers.
Importance of Active Under Contract for Buyers:
Lower Chances of Your Offer Getting Accepted
If you’re not the buyer under contract, it is important to note that while the property may still be shown to potential buyers, while you may still submit an offer, the likelihood of your offer being accepted or successful is lower. Lower compared to submitting an offer on a house that is not yet under contract.
It doesn’t matter how competitive or better your offer is compared to that made by the potential buyer under contract. Your offer being accepted wholly depends on the termination of the current contract by the seller or the buyer under contract.
Limited Negotiating Power:
As noted in the previous section, sellers often keep a house active under contract not only because they’re worried about the contract falling through, but also because they believe there is a chance (high or low) that they can get a better offer.
Buyer Under Contract
If you’re the potential buyer under contract, then this status of Active Under Contract, truth be told, reduces your negotiating power. You know that you have to try to be amenable with the seller. Failure to see eye to eye on contingencies can result in the seller choosing to terminate the contract. Work closely with your attorney to help you through these negotiations.
Not the Buyer Under Contract
If you’re not the buyer under contract, it is essential to work closely with a real estate agent who can provide insights into the existing contract and also advise you on whether you should submit a backup offer or if you should be exploring alternative options. As stated above, even if you were to make an offer, the acceptance of your offer is dependent on the termination of the current contract, not on how competitive your offer is or how good your negotiating skills are.
Can be A Strategic Advantage
Although the likelihood of a backup offer being accepted during the “Active Under Contract” stage is relatively low, it can still be a strategic move for first-time home buyers. By submitting a backup offer, you can position yourself as a potential alternative if the initial contract falls through. Proper research and information gathering will help you understand how to make your offer as good as possible.
Interested in a Property Active Under Contract?
Here are some tips for first-time home buyers to consider when evaluating a property labeled as “Active Under Contract”:
- Gather Information: Obtain as much information as possible about the property’s current status and the terms of the existing contract. Work closely with your real estate agent to understand the contingencies in place, the progress made, and any potential challenges that may arise.
- Assess the Likelihood: Evaluate the likelihood of the current contract successfully closing. Consider factors such as the buyer’s financial stability, contingencies yet to be fulfilled, and any potential issues that may impact the sale. Your real estate agent can provide insights and help you gauge the probability of the contract reaching the closing stage.
- Determine Your Position: Assess your position as a potential buyer. Consider your financing options, readiness to proceed with the purchase, and your flexibility in meeting the seller’s requirements. Understanding your position will help you determine the best course of action and whether it’s worth pursuing the property.
- Consult with Your Agent: Lean on the expertise of your real estate agent. They can guide you through the complexities of the “Active Under Contract” status and provide advice tailored to your specific situation. Rely on their knowledge of the local market, negotiations, and contract terms to make informed decisions.
- Explore Backup Options: While the chances of submitting a successful offer on a property labeled as “Active Under Contract” may be reduced, it may still be worth considering submitting a backup offer. Discuss this option with your agent, who can guide you through the process and advise on the likelihood of your backup offer being accepted.
Conclusion
Understanding the various property statuses on real estate listings is crucial for first-time home buyers. From “Active” to “Active Under Contract,” “Pending” to “Sold,” each status provides valuable information about the availability and progress of a property in the selling process. It is essential to grasp the implications of these statuses to make informed decisions and effectively navigate the home buying journey.
The “Active Under Contract” status holds particular significance. It indicates that a property is under contract but remains actively marketed, potentially allowing for backup offers. First-time home buyers should recognize that while a property labeled as “Active Under Contract” is still accessible, the likelihood of submitting a successful offer may be reduced. However, working closely with a knowledgeable real estate agent, conducting thorough research, and evaluating the seller’s motivations can help buyers determine if it’s worth considering a backup offer.
Throughout the process, staying informed, conducting due diligence, and relying on the guidance of a trusted real estate professional are paramount. Being aware of the potential reasons for a property being labeled as “Active Under Contract,” such as pending inspections, appraisal, financing, or contingencies, helps buyers understand the dynamics and possible outcomes.
In the competitive real estate market, backup offers can be a strategic move, positioning buyers to potentially secure a property if the primary contract falls through. While the acceptance of backup offers is not guaranteed, it provides an additional opportunity for buyers and helps protect against unexpected changes or developments.
By conducting thorough research, working closely with a real estate agent, and carefully considering the implications of property statuses, first-time home buyers can navigate the complexities of the market more effectively. Remember, the journey to homeownership involves patience, diligence, and informed decision-making. With the right knowledge and support, you can find the perfect home that meets your needs and aspirations.
Sincerely,
Your Mortgage Minister
