If you’ve found the perfect home online but seen the MLS status Active Under Contract (AU), then is it worth moving forward and viewing that home?
Active Under Contract – Sold Already?
If a home is listed as Active in the MLS, that means it’s available. That part is simple. If it’s Active Under Contract, that means the seller has accepted an offer, and optionally may take backup offers.
But Active Under Contract with a contingency generally means that the home in question is available but with an offer accepted with a contingency. Buyer One has got there first, but they have a home to sell before they can complete
Active Under Contract with a contingency means you can put in an offer – the home is available.
There’s a pretty simple Texas Real Estate Commission form that governs contingent purchases, and I’ll go through it briefly here.
Contingent on What?
In the original offer that has been accepted from Buyer One, it is subject to another house being sold by a certain date. The seller is still accepting other offers.
How Buyer One Can Remove the Contingency
Now, if you as Buyer Two come along and submit an offer, the seller can decide to accept it. The seller would then give Buyer One the option to remove the contingency, normally at a hefty cost (increased Earnest Money at risk if the contract doesn’t close). That would depend on how they negotiated Offer One.
Part of TREC’s form – waiving Contingency
Waiving the contingency is locking Buyer One into buying the property whether they sell their other property or not, increasing the risk for Buyer One, but decreasing it for the seller.
What happens if Buyer One’s other property doesn’t sell?
If the other property doesn’t sell by the prescribed date, then Buyer One is released from the contract, and the home becomes available again – Active.
Should a Seller Accept a Contingent Offer?
As a seller, you don’t have much to lose if you accept an offer from Buyer One, so long as the terms of the contingency are in your favor. If you want certainty, then a contingency isn’t for you. (Your listing agent would investigate the details of the home that needs to be sold – is it under contract, is it reasonably priced and marketed etc).
The TREC form covers waiver of contingency – more Earnest Money for the seller
Accepting a contingent offer doesn’t preclude a seller from accepting another offer later, and the seller could set it up so that they win in every eventuality.
So maybe you make the deadline short and the fee for removing the contingency very high.That’s of course if you’re prepared to collect it if Buyer One is forced to back out. That can be too much uncertainty for some sellers. Regardless, I would advocate negotiating for a very short deadline for a decision from Buyer One if a better offer comes along.
Can I Offer on an Active Under Contract Home?
By all means. It’s still Active in terms of receiving offers. It would be reasonable to ask the seller how long the period for removing the contingency is, so that you would be able to plan around it.
With that said, Buyer One may have offered better terms to compensate for the contingent sale of another home. So your offer might need to be strong in other areas to get accepted.
If your offer isn’t contingent on another home sale, then the seller may be more inclined to accept it.