Can You Buy a Home That’s Active Under Contract?

By: ROS Team

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Buying a home is both fun and challenging. House shopping alone is time-consuming, especially if you’re on a quest to find your dream house. Let’s say you find what you’re looking for and make an offer only to learn the house is already under contract. To add insult to injury, you don’t even know what “active under contract” means.

It’s a good idea to become familiar with this term before starting your home search, and we can help.

What Does “Active Under Contract” Mean?

In real estate, a property is said to be active under contract when the seller and a potential buyer have agreed on a sales price and are in the early stages of the transaction.

What does “active under contract” mean

A few key things to know about a property that’s deemed “active under contract:”

  • The seller has accepted a contingent offer from the buyer.
  • There are certain contingencies that must be met before the agreement is finalized (i.e. a home inspection contingency).
  • The duration of the contract depends on the nature of the contingency; it may take weeks to months to determine whether all contingencies are met. If all are not met, the deal may fall through.
  • The seller may consider backup offers received from other potential buyers in case a current contract gets canceled.

The point here is that while seller and buyer have agreed to begin the transaction it isn’t yet final. So, if you happen to like a home that’s active under a contract, don’t get discouraged–prepare to make a convincing offer anyway since can’t say with certainty that the initial agreement will be finalized.

Active Under Contract vs Pending

While you might have seen “active under contract” on the property listing, you may have also seen the term “pending.”  The concepts are similar but there is a key difference between them.  When a property is listed as “active under a contract,” there are conditions/contingencies that must be met before the deal can close.

However, when a property is listed as “pending,” all the contingencies have been met and the deal is on the road to being finalized. It is worth noting that the sale of a property is still not final even though it’s under contract or a sale is pending.

Active Under Contract vs Pending

There is always a probability that the transaction may stall or get canceled altogether. So, if you’re interested in a property that’s listed as being under contract or is pending sale, there’s no harm in preparing an offer for it just in case.

Why is “Active Under Contract” Needed?

Building contingencies into the offer is one way to keep the buyer’s interests protected. When buyers make an offer and contingencies are included, sellers must meet and/or address certain conditions with the property before the transaction is finalized.

This allows buyers the opportunity to back out of the deal without consequences. However, if the buyer backs out for reasons not stated in the contract. The buyer is subject to a financial penalty. Usually, it takes several weeks for all the conditions to be fulfilled.

Some of the Most Common Home Contingencies are:

  • Home Inspection

The seller is supposed to disclose the house’s conditions to the potential buyer. However, the buyer always gets the home inspected by a third party to get a better idea of the conditions of the property. Having an inspection contingency means the buyer gets a chance to find out about any major structural flaws that were not disclosed earlier.  The buyer can then choose to get out of the deal or use the results as a tool to negotiate the sales price.

  • Financing

Even though buyers get pre-approval for financing before making an offer. There is still no guarantee that the buyer will get approved for a loan. The lender thoroughly reviews the loan application and may decline it even after the pre-approval process.  With this in mind, it may prove fruitful to include a financing or mortgage contingency in your offer.

  • Home Sale

Upgrading usually means buying a bigger home. Most people plan to sell their current home before buying a new one.  A home sale contingency means the offer on the new house will only be good. If the seller successfully sells their current home within a certain period of time.

  • Appraisal

An appraisal contingency means the deal is only good if the property’s market value is not less than the contract amount. This contingency is often included because lenders can decline a home loan application. If the property is valued at less than the sales price quoted on the contract.

Conclusion:

Finding the home of your dreams takes luck and patience. It might be very disappointing to find out that the house you love is already active under contract. However, all is not lost for you.

Even though the seller has accepted the buyer’s offer, there is no guarantee that the deal will be finalized. There is still a fair chance that one or more contingencies might not be fulfilled causing the buyer to back out of the deal. This is the reason sellers consider backup offers.  Don’t be deterred from making an offer on a home that is already active under a contract.  Yours may end up being the backup offer the seller considers after an earlier offer falls through.