Home Real Estate Active Option Contract (What It Means And Why It’s Important)

Active Option Contract (What It Means And Why It’s Important)

What is active option contract?

What is the difference between active under contract vs pending?

How does it work?

We will look at what an active option contract means, its definition, look at its differences versus pending status or an active contingent status, understand what is the active option period or the option fee and more!

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What is active option contract 

An active option contract (or AOC) is an MLS status code meaning that the seller of a real estate property has accepted a promise to purchase but the buyer is within an “option” period where there is a chance that he or she may choose to back out of the deal.

Typically, most real estate transactions are assorted with conditions and contingencies that must be satisfied before the promise to purchase is considered “firm”.

One standard condition imposed by buyers is the option to inspect the property.

When a promise to purchase is accepted by the seller where the buyer has a certain amount of time to inspect the property during that period and based on the outcome of the inspection, the buyer can exercise an “option” to back out.

During this phase of the real estate transaction, we say that the deal is in active option contract.

In essence, the term “active option contract” signals to prospective buyers and other real estate agents that the property is technically available for showing although the seller has accepted someone’s offer which is currently within the due diligence period.

What’s notable is that in some states, during the option period, the buyer can legally get out of the accepted offer for any reason.

Although in most cases, the buyer will probably move forward with the closing of the real estate purchase.

However, it’s also possible that the buyer calls off the deal within the “option period”.

Active option contract definition 

How do you define active option contract?

What is an active option contract MLS status code?

You can define active option contract as:

An MLS status code to designate that a property seller has accepted an offer and the buyer is within a contractual opt-out period
Author

This means that there is a “contract” on the property but the buyer’s purchase decision remains to be confirmed.

Types of MLS status code

What does active option contract mean in real estate?

There are different types of MLS status codes allowing real estate brokers, real estate agents and real estate buyers or investors to determine the status of a property in the real estate market.

You can have the following real estate property listing status:

  • Active
  • Active option contract
  • Active contingent 
  • Pending 
  • Sold 

An active status means that the property is available to anyone who may be interested in purchasing it.

An active option contract is a status to designate that someone has submitted a promise to purchase on the property and the seller accepted that offer.

However, the potential buyer is currently in the due diligence period and has the ability to exercise the option to not go through with the deal.

In other words, the buyer is within the “option period” and can decide to abandon his or her purchase decision.

The active contingent status is when a homeowner or property owner has accepted a buyer’s promise to purchase and the parties are working on the contingencies.

Standard contingencies are financing, inspection, an inspection of the Homeowners Association documents and appraisal.

The pending status is when the contingencies in a promise to purchase are satisfied and the property is locked until the actual closing takes place.

Sold, evidently, means that the closing took place and the property is sold to someone else.

Active option contract period 

How long is the active option contract period?

In most cases, the option period is not very long.

Generally, the buyer will have roughly 5 to 10 days to perform an inspection of the property by hiring the services of a third party (certified home inspector).

During the option period, the property remains “active” in the real estate market.

It means that the seller continues to actively show the property and market it to potential buyers and solicit backup offers.

During the option period, if the buyer elects not to buy the property anymore, then the promise to purchase falls.

However, suppose the buyer does not exercise his or her opt-out or lets the option period lapse. 

In that case, the parties can deal with any other contingencies in the accepted promise to purchase.

Why have an active option period 

Why do buyers have an option period in the first place?

The buyers elect to have an option period allowing them to think about the transaction, further evaluate the property in question, perform their due diligence and validate that their purchasing decision is the right one.

This is good for both buyers and sellers.

On the one hand, buyers want to buy a property without any surprises.

They want to think about their options and choose the best possible house within their budget.

On the other hand, sellers want to sell a property to someone truly interested and thought about their decision.

This reduces the possibility of future litigation and disputes between the parties (although it does not prevent it).

Active option contract vs pending

What is the difference between an active option contract and pending status?

An active option contract is an MLS code that means a home seller has accepted a person’s offer but the buyer is within an option period to choose to drop or abandon the deal.

On the other hand, a pending MLS code (under contract – pending) means that a home seller has accepted a buyer’s offer and the property is firmly sold pending the finalization of the paperwork and closing.

In other words, the property is no longer marketed or being actively promoted and placed in escrow (or locked) until the seller formally signs over the title deed to the buyer.

Active option contract vs active contingent

An active option contract refers to a home or property going under a contract (accepted offer) but where the buyer has not yet committed 100% to the deal.

In essence, the buyer has the right to opt-out of the deal during the contract option period.

On the other hand, an active contingent means there is an accepted offer where the buyer is looking to satisfy outstanding contingencies.

In other words, certain conditions need to be satisfied before the sale can be satisfied.

The term “active option contract” may also mean the same thing as “active contingent” or “due diligence period” depending on the state.

Active contingent can include an inspection period representing a contingency a buyer can use to back out of the deal.

Active option contract vs active kick out

An active option contract refers to a real estate transaction where a buyer has placed an offer on a property and is currently within a period of time legally allowing him or her to cancel the deal.

Active kick out status code refers to a property where the seller has agreed to sell the property to the buyer conditional on the buyer selling their current home.

The property remains “active” in the market and the home seller continues to show it to prospective buyers.

Sellers prefer to have an offer that is not contingent on the buyer selling their current home, particularly in markets where it may take a long time for a property to sell.

However, in hot markets where properties are sold quickly, this may not necessarily pose any major issues.

Option fee and earnest money 

What is an option fee?

What’s the difference with earnest money?

In some states, a buyer must pay an option fee.

The option fee (also known as the active option contract fee) is an amount of money the buyer deposits that will be applied to the purchase price if the buyer continues with the purchase or will be lost if the buyer elects to opt out of the deal.

On the other hand, the earnest money (also known as the good faith money) is a deposit made by the prospective buyer that will be refunded in case the deal does not go through.

Takeaways

So, what is an active option contract?

What does an active option contract mean?

In this post, that’s what we attempted to clarify.

In summary, “active option contract” is a property status code designating that the property has received an offer accepted by the property owner and where the buyer has the legal right to cancel the deal.

There are different real estate status codes that could make it confusing to really know what a particular status code refers to.

Every state will have its own way of referring to the same thing.

For instance, under contract option pending can also be referred to as “due diligence period” or “contingency period”.

The common way of understanding the active option contract meaning is to think of it as a buyer’s offer was accepted but the buyer is yet not 100% sure to go through with the real estate purchase.

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Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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