What Does Active Under Contract Mean on a House for Sale?

What Does Active Under Contract Mean on a House for Sale?

“Active under contract” is a real estate term that often puzzles prospective buyers and sellers. This status signifies a property with an accepted purchase offer, but the transaction is not yet complete. Understanding this terminology is crucial for anyone engaging with the housing market, as it clarifies the exact stage of a property’s sale and the opportunities or limitations it presents.

Defining “Active Under Contract”

When a home is listed as “active under contract,” it means the seller has accepted a purchase offer from a buyer, and both parties have signed a legal agreement. However, the sale is not yet finalized, as certain conditions, known as contingencies, must be met before the deal can officially close. The “active” component of this status indicates that despite the accepted offer, the property may still be marketed, and the seller might entertain backup offers. This approach provides a safety net for the seller in case the initial agreement encounters unforeseen issues.

This status differs significantly from “pending” or “sold” listings. A “pending” status typically means that most or all contingencies have been satisfied or waived, and the transaction is very close to completion, often just awaiting final paperwork and closing. In contrast, “sold” means the property transaction is fully complete, ownership has transferred, and the property is no longer on the market.

Key Stages During the Contract Period

Once a property moves to “active under contract,” a series of procedural steps and common contingencies typically unfold, each designed to protect the interests of the buyer, seller, or both. These contingencies are conditions that must be fulfilled for the contract to proceed toward closing.

A primary contingency is the home inspection. Buyers typically have a period, often between 7 to 14 days, to hire a professional inspector to evaluate the property’s condition. This inspection covers structural components, systems like HVAC and plumbing, and potential issues such as water damage or electrical problems. If significant issues are discovered, the buyer can request repairs, negotiate a price reduction, or, in some cases, withdraw from the contract without penalty, often retaining their earnest money deposit.

Following or concurrent with the inspection, an appraisal contingency usually comes into play, especially if the buyer is securing a mortgage. The lender requires an independent appraisal to confirm the property’s market value meets or exceeds the agreed-upon purchase price. If the appraisal comes in lower than the sale price, the buyer, seller, and lender must negotiate, which might involve the buyer paying the difference, the seller lowering the price, or the deal potentially falling apart.

A financing contingency is another common and crucial step, allowing the buyer a set timeframe, usually 30 to 60 days, to secure final mortgage approval. This protects the buyer by allowing them to withdraw from the contract without losing their earnest money if they are unable to obtain the necessary loan. During this period, the lender reviews the buyer’s financial situation, including credit, income, and assets, to ensure loan eligibility.

Finally, a title search is conducted to verify clear ownership of the property and identify any liens, encumbrances, or disputes that could affect the transfer of title. This process ensures that the seller has the legal right to sell the property and that the buyer will receive a clean title, free from unexpected claims. If title issues are found, they must be resolved before closing can occur.

Guidance for Potential Buyers

Discovering a desirable home listed as “active under contract” does not necessarily mean the opportunity is lost for potential buyers. While an accepted offer exists, the presence of contingencies means the current deal is not yet final, offering a slim possibility for other interested parties. Buyers can still express interest and, in many cases, submit a “backup offer.”

A backup offer is a formal, legally binding contract that positions a second buyer to purchase the home if the primary contract fails. If the initial deal falls through due to unmet contingencies—such as a failed inspection, low appraisal, or financing issues—the backup offer can automatically move into the primary position. This can save the seller the time and effort of relisting the property and searching for a new buyer.

Buyers interested in an “active under contract” property should work closely with their real estate agent. An agent can help monitor the property’s status, inquire about the specific contingencies in place, and advise on the likelihood of the current deal falling through. They can also help craft a competitive backup offer, potentially including an earnest money deposit to show commitment, which would be held in escrow. While the odds of a backup offer being accepted are generally low, it provides a chance to acquire a sought-after property if the initial transaction does not proceed.

Guidance for Sellers

For homeowners whose property is “active under contract,” this period represents a phase between accepting an offer and finalizing the sale. While an agreement is in place, the seller’s agent may continue to show the property and entertain backup offers. This strategy acts as a safeguard, providing alternative options if the primary contract encounters issues and falls through, preventing the need to restart the entire marketing process.

Sellers have specific responsibilities during this time, particularly regarding property access for inspections and appraisals. They must facilitate reasonable access for the buyer’s chosen inspectors and the lender’s appraiser. If the inspection reveals issues, the buyer may submit repair requests or seek price adjustments. Sellers must carefully consider these requests, potentially negotiating repairs, offering credits, or declining, which could lead to renegotiation or even termination of the contract.

Throughout the “active under contract” period, clear and consistent communication with the real estate agent is important. The agent can provide updates on contingency fulfillment, manage communications with the buyer’s agent, and navigate any challenges that arise. Preparing for closing involves ensuring all necessary documents are in order, addressing any outstanding repair agreements, and coordinating moving logistics, all while remaining flexible in case of unexpected delays.