What Does Active Under Contract Mean? A Guide for US Home Buyers and Sellers

"Active Under Contract" is a property status indicating a seller has accepted an offer from a buyer, but the sale is not yet final. This critical phase in a real estate transaction means the home is effectively off the market, contingent on the successful completion of specified conditions outlined in the purchase contract. For buyers, it signals a need to move on, while for sellers, it represents a period of cautious optimism as several key steps, including inspections and the buyer's mortgage approval, must be completed before closing.

What is the Difference Between Active Under Contract and Pending?

The distinction between "Active Under Contract" and "Pending" can be confusing, as their use varies by regional Multiple Listing Service (MLS) rules. Generally, "Active Under Contract" implies that certain contingencies are still active, meaning the deal could potentially fall through if those conditions are not met. A common contingency is the home inspection, which allows the buyer to renegotiate or withdraw based on the findings. "Pending" status often suggests that major contingencies have been satisfied and the sale is proceeding towards a final closing, with a lower likelihood of falling apart. However, in some markets, the terms are used interchangeably.

The Home Buying Process During the Active Under Contract Phase

For the buyer whose offer was accepted, this period is busy and crucial. Your primary objective is to diligently fulfill all the contingencies within the agreed-upon timeframe. Key steps include:

• Securing Financing: You will work closely with your mortgage lender to finalize your loan application. The lender will order an appraisal to ensure the property's value matches the sale price.
• Conducting Inspections: You will hire professionals to perform a general home inspection and potentially specialized inspections for pests, radon, or structural issues.
• Reviewing Documents: You and your agent will review important documents like the preliminary title report, which reveals any existing claims or liens on the property.

Failure to meet any contingency deadlines or secure final loan approval can result in the termination of the contract and the loss of your earnest money deposit.

The Seller's Perspective and Responsibilities

As a seller, a property going "Active Under Contract" is a significant milestone, but it is not the finish line. Your responsibilities include:

• Continuing to Maintain the Property: The home must be kept in the condition it was in when the offer was accepted.
• Providing Access: You must allow the buyer and their inspectors access to the property as outlined in the contract.
• Addressing Repair Requests: Based on inspection findings, the buyer may submit a request for repairs or a credit. You have the option to agree, negotiate, or refuse, understanding that refusal could lead the buyer to walk away.

Sellers should be aware that while the property is technically off the market, "kick-out" clauses or contingent offers can sometimes allow for backup offers to be considered if the primary deal fails.

Common Reasons a Sale Falls Through During This Phase

Even with a signed contract, deals can unravel during the "Active Under Contract" stage. The most frequent reasons include:

• Unsatisfactory Home Inspection: Major issues discovered during the inspection that the buyer and seller cannot agree on resolving.
• Low Appraisal: If the lender's appraisal comes in below the sale price, the buyer may be unable to secure financing unless the seller lowers the price or the buyer covers the difference.
• Financing Denial: The buyer's final mortgage application is denied by the lender due to changes in their financial situation or employment.
• Title Issues: Problems uncovered in the title search, such as unknown liens or ownership disputes, that cannot be cleared before closing.

Understanding these risks underscores the importance of the contingency period for both parties.

Practical Steps and Key Takeaways

Navigating the "Active Under Contract" phase requires patience and attention to detail. For buyers, this is the time for thorough due diligence. For sellers, it's a period of cooperation and preparation for the closing table.

• For Buyers: Be proactive with your contingencies. Hire reputable inspectors and respond quickly to lender requests to keep the process on track.
• For Sellers: Maintain your home and be prepared to negotiate in good faith on inspection issues to ensure the deal proceeds to closing.
• For Both Parties: Maintain clear communication with your real estate agent, who will guide you through each step and help manage expectations.

Ultimately, while "Active Under Contract" is a positive step, the sale is only final once all parties sign the closing documents and the keys are transferred.