What Does Active Under Contract Mean? A Complete Guide

Introduction: Understanding “What Does Active Under Contract Mean?”

When navigating the real estate market, you may encounter the phrase “What does active under contract mean?” It’s a term often used in listings, and it can be a bit confusing for both buyers and sellers. Knowing its exact meaning and how it impacts your home search or sale process can help you make more informed decisions.

In this article, we will dive into the meaning of “What does active under contract mean“, explore its significance in real estate transactions, and clarify its impact on buyers, sellers, and agents. By the end of this guide, you’ll understand the term thoroughly and how to approach situations when you encounter it in your real estate journey.

What Does Active Under Contract Mean?

At its core, “What does active under contract mean” refers to a property that is currently in the process of being sold. However, while it may seem like a home is off the market when it’s under contract, there are nuances to this status. Let’s break it down.

1. Active Status with a Contract: When a property is marked as “active under contract,” it means that the seller has accepted an offer from a buyer, and the property is now in escrow. During this phase, the property is still technically available for showings and backup offers, meaning the sale is not yet final.
2. Pending or Contingent Status vs. Active Under Contract: It’s essential to distinguish between active under contract, pending, and contingent statuses. An “active under contract” listing typically means that negotiations are still ongoing, and inspections or appraisals might not yet be completed. In contrast, “pending” often refers to a situation where all contingencies have been cleared, and the sale is near closing.

What Happens During the “Active Under Contract” Stage?

Now that we know the meaning of “What does active under contract mean”, it’s important to understand what occurs during this phase of a property’s sale. The active under contract stage is crucial because it reflects a transition from the seller’s market to a more complex part of the process. Here’s what happens:

1. Offer Acceptance: A buyer makes an offer on a property, and the seller agrees to the terms. The property is then listed as “active under contract,” signaling that both parties have reached a preliminary agreement.
2. Escrow Begins: Once the offer is accepted, the property enters escrow. During this period, a third-party entity holds all documents and funds until the terms of the contract are met. This can take several weeks.
3. Home Inspections and Appraisals: One of the first steps in the escrow process is conducting inspections and appraisals. The buyer may request repairs based on the inspection results, and the property will be appraised by a lender to ensure the home’s value is adequate for the loan.
4. Contingencies: The offer typically comes with contingencies—conditions that must be met for the sale to move forward. Common contingencies include financing, home inspection, and appraisal contingencies. If any of these contingencies aren’t met, the buyer may choose to back out or renegotiate terms.
5. Backup Offers: While the seller has accepted an offer, the property is still technically “active” in that other buyers can submit backup offers. If the first deal falls through, the seller may choose to move forward with one of these backup offers.

Why Does “Active Under Contract” Matter for Buyers?

As a buyer, it’s important to understand what “What does active under contract mean” because it directly impacts your ability to acquire the home. When a property is under contract, it’s no longer available for an immediate sale, but here’s why it matters:

1. Opportunity for Backup Offers: If you’re interested in a property listed as active under contract, you can still submit a backup offer. If the current buyer backs out due to financing issues or failed inspections, your backup offer might be accepted.
2. No Immediate Action Needed: While you may not be able to move forward with purchasing the home immediately, it’s still a good time to monitor the situation. Many buyers lose out on properties simply because they don’t stay updated on statuses like “active under contract” and miss the chance to submit a backup offer.
3. Market Awareness: Understanding “What does active under contract mean” can help you better understand local market conditions. A lot of homes going under contract quickly may indicate a competitive market, while a property that remains in an “active under contract” status for an extended period might signal potential issues with the sale.

Why Does “Active Under Contract” Matter for Sellers?

For sellers, “What does active under contract mean” signifies that the home is no longer actively listed for sale, but the process is not yet complete. Here’s how this status affects sellers:

1. Not Finalized Yet: While you’ve accepted an offer, there are still a number of conditions to meet. This is a critical time for sellers because negotiations can fall through during the inspection, appraisal, or financing process.
2. Backup Offers: If you have accepted an offer but have not yet closed, listing your home as “active under contract” allows other buyers to submit backup offers. If something goes wrong with the current deal, you’ll have an alternative offer ready to consider.
3. Managing Expectations: It’s important for sellers to manage their expectations. Even though they’ve agreed on a price, the sale may not go through if there are issues with financing or inspections. Knowing that “What does active under contract mean” helps sellers stay realistic about their sale’s progress.

Is “Active Under Contract” Different From “Pending”?

The distinction between “active under contract” and “pending” can be confusing, but it’s an important one for buyers and sellers. Here’s how they differ:

1. Active Under Contract: When a property is marked as “active under contract”, it means that an offer has been accepted, but the deal is not yet final. The seller is still accepting backup offers, and the buyer has a chance to back out if contingencies aren’t met.
2. Pending: A property marked as “pending” means that all contingencies have been cleared, and the sale is almost complete. There’s less flexibility for the buyer or seller to back out at this stage, and backup offers are usually not considered. This is a final step before closing.

Understanding the difference between these two terms is critical for both buyers and sellers to avoid confusion and manage expectations during a real estate transaction.

How Long Does a Property Stay “Active Under Contract”?

The length of time a property remains in the “active under contract” status can vary widely. Generally, the escrow period can last anywhere from a few weeks to a couple of months, depending on the complexity of the transaction. Several factors contribute to how long a property stays active under contract, such as:

1. Contingencies: If the buyer has contingencies, such as needing to sell their own home first, the property might remain under contract for a longer period.
2. Inspection and Appraisal Results: The time it takes for inspections and appraisals to be completed can also affect the timeline. If issues arise during this phase, the deal could be delayed or canceled.
3. Financing Approval: If the buyer is obtaining a mortgage, approval can take time. Delays in financing might cause the transaction to remain in active under contract status longer than expected.
4. Local Market Conditions: In a hot real estate market, homes may go under contract and close faster. In a slower market, the process might take more time, with buyers and sellers taking longer to finalize terms.

What Should Buyers and Sellers Do If a Property is “Active Under Contract”?

If you’re a buyer or seller dealing with a property that is “active under contract”, you may be wondering what steps to take next.

1. For Buyers: Stay in touch with your real estate agent to stay updated on the status of the property. If you’re interested in submitting a backup offer, make sure it’s ready in case the first deal falls through. It’s also a good idea to keep looking at other properties to ensure you’re not missing out on other potential homes.
2. For Sellers: Continue working with your agent to ensure that all contingencies are met and that the sale proceeds smoothly. Stay in touch with potential backup buyers in case the current deal falls through. It’s crucial to remain proactive and prepared for unexpected challenges.

Conclusion: What Does Active Under Contract Mean?

In conclusion, understanding “What does active under contract mean” is essential for anyone involved in a real estate transaction. While the term indicates that a property is in the process of being sold, it also means that there’s still a chance for things to fall through or change. Both buyers and sellers should stay informed and proactive, whether they’re looking for a backup property or managing a potential sale.

FAQs

1. What does “active under contract” mean in real estate?
   • It means the seller has accepted an offer, but the deal is not yet finalized and the property may still accept backup offers.
2. Can I still make an offer on a property that is active under contract?
   • Yes, you can submit a backup offer, which may be considered if the current deal falls through.
3. What’s the difference between “active under contract” and “pending”?
   • “Active under contract” means negotiations are ongoing, while “pending” means all contingencies have been cleared and the sale is near closing.
4. How long can a property stay active under contract?
   • It varies, but typically it can last a few weeks to a couple of months, depending on contingencies and other factors.
5. Can a buyer back out after an offer is accepted and the property is active under contract?

Yes, if the contingencies are not met, such as failing a home inspection or financing issues, the buyer can back out.