What does active under contract mean?
What is active under contract vs pending?
What are the different MLS listing status?
In this article, we will break down the notion of “active under contract” so you know all there is to know about it!
We will look at the active under contract meaning, answer the question what does active under contract mean, look at the different MLS listings like “active”, “active under contract”, “pending” or “sold”, compare sale pending vs under contract and more!
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What does active under contract mean
Active under contract is a term used in real estate to indicate that there is an accepted offer on the property but the real estate transaction is not yet firm and final.
In the Multiple Listing Services (or MLS), representing the real estate broker listing database, the sale of a real estate property can be classified as:
- Active under contract
Each of these classifications gives prospective buyers an indication as to the status of the property sale.
When a property is put on the market, it is classified as “active”.
Eventually, if the seller accepts an offer with contingencies, the status will be changed to “active under contract”.
Once the offer contingencies are lifted and the deal becomes firm and final, the status is changed to “pending”.
This means that the property can no longer be transacted as it has moved to the final stage of the real estate transaction where the buyer and seller are completing the paperwork and contracts.
Once the real estate transaction is closed and the deed of sale is signed, the property will get classified as “sold”.
During the active under contract stage, the property owner has to wait until the buyer’s contingencies are resolved as per the terms of the accepted offer.
However, in the meantime, the seller can continue showing the property to other prospective buyers and even accept backup offers subject to the accepted offer.
If the contingencies are successfully dealt with, the property will then proceed to the pending status.
However, if the contingencies are not resolved as per the terms of the accepted offer to purchase, the seller can put his or her property back on the market or proceed with the next backup offer in line.
During the active under contract period, the number of days on the market continues to be calculated on the property.
Active under contract definition
You may be wondering what is active under contract or what does active under contract mean in real estate?
Active under contract or active with contract is a terminology used in real estate to help buyers and sellers make better decisions and choices.
Active under contract can be defined as:
A property listed on the Multiple Listing Services with an accepted offer and where the property remains available for marketing, showing and visits in an attempt to find backup offers.
A property may be classified as active under contract where the accepted offer to purchase contains a kick-out clause.
This means that if a backup offer comes in, the seller may terminate the contract with the contingent buyer or “kick out the buyer” in favour of the other offer.
MLS Listing status
Let’s look at the different MLS status that a property can have from the moment it is listed all the way to the moment it is sold.
When a property owner mandates a real estate agent or broker to sell his or her property, the real estate professional will create an MLS listing for the property.
When the property listing is created in the MLS, the property is effectively up for sale and will have an “Active” status.
Active under contract
When the real estate agent receives a promise to purchase from a buyer that the seller accepts, the accepted offer will impact the status of the property on MLS.
The property will go from an active status to status under contract.
If the accepted offer to purchase contains contingencies or conditions that must be fulfilled before the sale can be considered firm and final, the property status will be shown as active under contract to indicate to prospects that there is a “contract” or “accepted offer” on the property.
The standard contingencies can include:
- Home inspection
- Home appraisal
- Bank financing
- Title search
- Attorney review
During the active under contract period, the real estate property remains listed and available for other prospective buyers to see.
The contingency period could last a few days or even a couple of months depending on the nature of the real estate transaction.
A property active under contract with kick-out allows the seller of a property to “kick out” a buyer having contingencies in favour of another offer.
If a buyer submits an offer to purchase a property without any contingencies that the seller accepts or if the contingencies of an accepted offer are met, the property is then formally sold and moves into the pending status.
The pending classification can be designed as “pending showing for backup” or “pending subject to lender approval”.
When a deal is in MLS pending mode, it means that the property is firmly sold and is now in the escrow period when the parties complete the necessary paperwork to officialize the sale.
The final steps to close a real estate transaction involves:
- Contract paperwork
- Contract signatures
- Disbursement of funds
- Title registration
Real estate agents and brokers will no longer show a property designated as having a pending status to potential buyers.
The final stage in an MLS listing is when the property status is set to “sold”.
When the property is classified as sold, the property is sold and all the legal contracts and paperwork are completed and signed.
The property will be removed from the MLS system and the market.
Under contract vs pending
What does it mean a property that is active under contract vs pending status?
What is the difference between active under contract vs contingent?
A with a property under contract status is a property that:
- Has an accepted offer by the seller
- The seller accepts showings
- The real estate agent is actively marketing
- Days on Market (DOM) and Cumulative Days on Market (CDOM) continue to accumulate
A property with a pending status is a property that:
- Has an accepted offer by the seller
- The offer contingencies are all met
- The property is in an escrow period pending the finalization of the real estate transaction
- The seller is no longer accepting showings
- The real estate agent is no longer marketing
- Days on Market (DOM) and Cumulative Days on Market (CDOM) are no longer accumulated
A property “active under contract” is a “contingent property sale”.
In other words, although you can make a backup offer on a property for sale active under contract, you should keep in mind that your offer will remain subject to the accepted offer with contingencies.
If the contingencies are met, then the property will be sold to the initial buyer.
However, if the purchase offer falls, the seller will go to the next backup offer in line.
Offer on an active under contract home
Many ask: can you make an offer on a house that is active under contract?
The answer to this question is yes, it’s possible, if the seller accepts more offers.
When you see a property showing active under contract, it pretty much means that the seller has accepted a written offer with contingencies.
What should you do?
Should you submit an offer?
Will that be a waste of your time?
In some cases, particularly in hot markets, it may be a good strategy to submit a backup offer on a property under contract to the extent the seller accepts offers.
However, if the accepted offer contingencies are met, the property will be sold to someone else.
Active under contract homes are technically “active” but “under contract”.
It sounds contradictory but it essentially means that the seller is actively marketing the property and will accept backup offers although it has accepted someone’s written promise to purchase.
The bottom line is that you “can” submit an offer but you should not put your hopes up as your offer may become effective only when the initial continent offer does not go through.
Active under contract contingencies
What are the most common types of contingencies leading an active property to go under contract?
An accepted offer with contingencies means that a seller has accepted the terms and conditions of a promise to purchase but the buyer’s promise is conditional or contingent on certain conditions or events.
The most common contingencies are:
- Home inspection contingency
- Mortgage contingency
- Appraisal contingency
- Home sale contingency
A home inspection contingency is the buyer’s election to inspect the property to ensure that it meets a minimum level of quality acceptable to his or her satisfaction.
Following an inspection, in case certain property defects or issues are uncovered, the parties may renegotiate the terms of their offer to deal with the potential cost of the identified issues.
The mortgage contingency is self-explanatory.
In most cases, buyers will not have the available cash or liquidity to buy the property without financing.
As a result, getting bank financing or a mortgage is a standard contingency in real estate transactions.
You also have an appraisal contingency that may be required to assess the property’s fair market value.
Finally, a home sale contingency is when the buyer who already owns a home or property includes a condition that the purchase of the new property must be conditional on the sale of his or her current home.
Generally, the parties agree to a certain time period to ensure this contingency is met.
There are different listing terminology used in different states.
The “active” and “sold” status are easy to understand.
So we’ll spare further explanation.
However, there are several other terminologies that may be confusing such as:
- Active Under Contract
- In Escrow
- Active Contingent
- Active Option Contract
- Sale Pending
- Active With Contract
- Pending Taking Backups
- Contingent Bumpable
- Active First Right
- Active Kick-Out
- Active No Show
Different states use different terminology to communicate the marketing status of a property or its market availability.
For example, an active option contract is when a buyer’s offer is accepted by the seller but the transaction is in the inspection period.
During the option period, the buyer has a short period of time to exercise the option to terminate the contract.
The buyer’s option period is equivalent to a sale contingency as the buyer must either perform an inspection and eventually declare the property to his or her satisfaction.
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