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Demystifying “Active Under Contract” in Real Estate: A Comprehensive Guide

So, you’ve been scouring real estate listings, and you’ve stumbled upon a property marked as “Active Under Contract.” What does it really mean? In essence, “Active Under Contract” (AUC) signals that a seller has accepted an offer from a buyer, and both parties have signed a purchase agreement. However, the deal isn’t finalized. It’s in a crucial limbo state where contingencies need to be satisfied before it can proceed to closing. Think of it as being engaged but not quite married yet – a commitment exists, but certain conditions still need to be met. This article aims to unravel the nuances of the AUC status and what it means for both buyers and sellers.

Understanding the Nuances of “Active Under Contract”

The “Active Under Contract” designation is a crucial indicator of a property’s status. It’s more than just a formality; it signifies a legally binding agreement subject to specific terms and conditions. Understanding these conditions is vital for anyone involved in the real estate transaction.

Contingencies: The Pillars Holding Up the Deal

Contingencies are the make-or-break clauses within the purchase agreement. They act as safeguards for both the buyer and the seller, allowing them to back out of the deal under certain circumstances without penalty. Common contingencies include:

Financing Contingency: This allows the buyer to cancel the contract if they are unable to secure a mortgage within a specified timeframe. It’s a crucial protection, ensuring the buyer isn’t forced to proceed with a purchase they can’t afford.
Inspection Contingency: This allows the buyer to have the property professionally inspected. If significant issues are revealed (e.g., structural problems, termite infestation, mold), the buyer can negotiate repairs, request a price reduction, or terminate the contract.
Appraisal Contingency: This ensures the property appraises at or above the agreed-upon purchase price. If the appraisal comes in lower, the buyer can renegotiate the price with the seller, walk away from the deal, or, in some cases, the seller can lower the price to meet the appraisal value.
Title Contingency: This allows the buyer to review the title report and ensure there are no liens, encumbrances, or other issues that could affect their ownership of the property.
Sale of Buyer’s Property Contingency: This allows the buyer to back out of the deal if they are unable to sell their current home within a specified timeframe. It’s a common contingency for buyers who need the proceeds from their current home sale to finance the purchase of the new property.

Distinguishing “Active Under Contract” from Other Statuses

It’s essential to differentiate “Active Under Contract” from other common real estate listing statuses:

Active: This indicates the property is available for showings and open to offers.
Pending: This typically means all contingencies have been satisfied, and the sale is nearing completion. It’s generally considered a stronger indication that the deal will close compared to “Active Under Contract.”
Sold: This confirms the property has been successfully transferred to the buyer, and the transaction is complete.
Withdrawn: The property is temporarily taken off the market but could be relisted in the future.
Canceled: The listing has been terminated and the property is no longer for sale.

Why Properties Remain “Active” Even When Under Contract

The “Active” part of “Active Under Contract” is deliberate. Sellers often choose to keep the property listed as “Active” to attract backup offers. This provides a safety net in case the initial deal falls through due to a failed contingency. Having backup offers can put the seller in a stronger negotiating position or expedite the sale process if the first buyer backs out.

The Perspective of Buyers and Sellers

The “Active Under Contract” status carries different implications for buyers and sellers.

For Buyers: Opportunity and Caution

As a buyer, seeing a property listed as “Active Under Contract” presents a mixed bag. On one hand, it means there’s a chance the deal could collapse, opening the door for a backup offer. On the other hand, it requires patience and a strategic approach.

Submit a Backup Offer: If you’re genuinely interested in the property, submitting a backup offer is a wise move. It puts you in line should the initial deal fall through.
Monitor the Listing: Keep a close eye on the listing status. If it changes to “Pending,” the deal is likely to proceed. If it reverts to “Active,” there’s an opportunity to pounce.
Consider Your Alternatives: Don’t put all your eggs in one basket. Continue exploring other properties while waiting to see what happens with the “Active Under Contract” listing.

For Sellers: Balancing Security and Opportunity

For sellers, maintaining an “Active Under Contract” status is about risk management and maximizing potential outcomes.

Secure a Backup Offer: Having a strong backup offer provides leverage and peace of mind. It allows you to move forward quickly if the initial deal fails.
Manage Expectations: Be transparent with potential backup buyers about the property’s current status and the existing contingencies.
Focus on the Primary Deal: While cultivating backup offers is prudent, prioritize satisfying the contingencies in the primary contract to ensure a smooth closing.

Navigating the “Active Under Contract” Landscape

Understanding the intricacies of “Active Under Contract” is crucial for a successful real estate experience. Whether you’re a buyer hoping for an opportunity or a seller seeking a safety net, knowing your options and staying informed is key.

Frequently Asked Questions (FAQs)

1. Can I still view a property that is “Active Under Contract”?

It depends. Some sellers may discontinue showings once a property is under contract. Others may allow showings only to potential backup buyers. Check with your real estate agent to confirm the showing policy for the specific property.

2. How long does a property typically stay in the “Active Under Contract” status?

The duration varies depending on the complexity of the contingencies involved. A straightforward deal with minimal contingencies might only remain in this status for a few weeks. A deal with more complex contingencies, such as the sale of the buyer’s property, could last for a month or longer.

3. What are the chances of a deal falling through when a property is “Active Under Contract”?

The likelihood of a deal falling through depends on various factors, including the strength of the buyer’s financing, the results of the inspection, and the overall market conditions. While it’s impossible to provide an exact percentage, a significant percentage of deals that reach “Active Under Contract” do successfully close.

4. What happens if the buyer backs out of the deal during the “Active Under Contract” period?

If the buyer backs out due to a valid contingency (e.g., failed inspection, inability to secure financing), they are typically entitled to a refund of their earnest money deposit. The seller can then activate a backup offer or relist the property as “Active.”

5. What happens if the seller backs out of the deal during the “Active Under Contract” period?

If the seller backs out without a valid legal reason, they could face legal consequences. The buyer may be able to sue the seller for specific performance, forcing them to complete the sale, or for damages to compensate for the buyer’s losses.

6. Is it worth making an offer on a property that is “Active Under Contract”?

Yes, it can be. Submitting a backup offer puts you in a favorable position should the initial deal collapse. Even if you don’t get the property, you’ve lost nothing but a little time.

7. How do I make a backup offer on a property that is “Active Under Contract”?

Your real estate agent can help you prepare and submit a backup offer. The offer should clearly state that it is contingent upon the termination of the existing contract.

8. Does the seller have to disclose the existence of a backup offer to the primary buyer?

Disclosure requirements vary by state. In some states, sellers are required to disclose the existence of backup offers to the primary buyer.

9. Can the seller accept another offer while the property is “Active Under Contract”?

Yes, the seller can accept a backup offer. However, the backup offer is only effective if the primary contract is terminated.

10. What is “Kick-Out Clause”?

A kick-out clause is a provision in a real estate contract that allows the seller to continue marketing the property and accept other offers even after accepting an offer from a buyer. The seller can “kick out” the initial buyer if they receive a better offer, giving the initial buyer a specified period (usually 24-72 hours) to either waive their contingencies or terminate the contract.

11. Should I waive contingencies to make my offer more appealing on a property that is “Active Under Contract”?

Waiving contingencies can make your offer more attractive, but it also increases your risk. Carefully consider the potential downsides before waiving any contingencies, especially inspection and financing contingencies. Consulting with your real estate agent and legal counsel is crucial.

12. What happens to my earnest money if my backup offer is accepted, but then the original deal closes?

If your backup offer is accepted, but then the original deal closes successfully, your earnest money deposit will be returned to you promptly. You are not obligated to purchase the property if the primary contract is fulfilled.