While real estate websites like Mashvisor have made it easier than ever for beginner real estate investors to find potential income properties online, they still have to navigate a sea of technical terms and legalese. It’s easy to become lost in real estate jargon. The status of a listing can be described in a variety of ways, including under contract, sale pending, sold, and so on. To add to the confusion, there are even more specific phrases that will frequently appear in online listings inside these broader status categories. “Active option contract,” is one of these more specialized terms.
In this article, we’ll go over the definition of the term “Active Option Contract “. We’ll break down the meaning of this real estate status so that you’ll know what it means to you as a buyer the next time you see it on an online property listing.
Related: 4 Types of Real Estate Contracts: A Beginner’s Guide
What is Does Active Option Contract Mean?
Typically, when a seller posts their home for sale, they will receive many offers. The housing status is indicated as active until the seller accepts an offer. During this time, the property is available for purchase. Anyone can make an offer for the house and be considered.
Once a property seller accepts an offer, the buyer has the option of paying for a brief window of time to conduct due diligence and can legally back out of the purchase of the property and be refunded their earnest money. If the buyer agrees, they are in a contract known as an active option contract. The active option contract allows the buyer to do a comprehensive inspection before proceeding with the purchase.
When the property seller accepts the buyer’s offer, the buyer pays an earnest money deposit to secure their place in the transaction. After the seller has saved the buyer’s spot, the buyer can investigate the property. The earnest money deposit is normally 1% to 2% of the home’s purchasing price.
In Texas, buyers are required to pay an option fee in addition to the earnest money deposit. The option fee, which usually ranges from $100 to $200, is non-refundable until the contract expires. The negotiated inspection period (option period) lasts between 5 and 10 days on average. The length of the option period and the amount of the option fee that has been agreed upon will be specified in the purchase contract.
The seller has the right to keep the option fee if the buyer decides to terminate the contract during the option period. Even if the buyer cancels the sale for a reason covered by a contingency in the contract, the option fee cannot be refunded. This charge covers the seller’s time spent holding the spot for the potential buyer. It is usually applied to the final sale price if the buyer completes the acquisition.
If the buyer cancels the contract for any reason specified in the contract, then the earnest money is refundable. However, if they back out for a reason that isn’t included in the contract and the deal falls through, the seller has the right to keep the earnest money.
Why Should You Consider an Active Option Contract?
An active option contract gives the buyer enough time to conduct their inspection and gives them peace of mind as the sale progresses. If they forgo that privilege, the house may suffer unanticipated damages in the future. These damages may be greater than the option price, and if discovered before the house closes, you may lose your earnest money if you cancel.
An active option contract is a must in Texas if you want the option of co ducting a home inspection and the right to back out of the deal with your earnest money intact if the inspection uncovers something that neither you nor the seller is prepared to fix.
Is it possible to make an offer on a Listing that is under an active option contract listing? Potential buyers can still make an offer on the house as long as the status hasn’t moved from active option contract to pending. That offer will be carried by the listing agent to the seller, who can accept it as a backup offer only. Any additional offer—even better offers—takes second place to the original buyer under the active option contract.
If you’re considering making a backup offer on an active option contract, you’ll need a top-notch agent on your side. If the purchase falls through, a local real estate market expert will assist your offer come to the top of the seller’s mind.
Real Estate Listing Statuses
When it comes to buying property, there are a number of listing statuses that potential buyers should be aware of. Some of these status terms indicate that you may still be able to purchase the home while others indicate that the residence is no longer available. Aside from active options contracts, here are a few others, along with explanations of what they mean in Texas.
Related: How to Analyze MLS Listings Using Mashvisor
Active Status
An active listing indicates that the property is still available for purchase and that the seller is receiving bids. It doesn’t mean there haven’t been any offers; it simply means the buyer hasn’t accepted any yet.
Active Contingent Status
When a home is listed with an active contingent status, it signifies that a buyer has made an offer that the seller has accepted, but the buyer must first sell their current home before purchasing the property.
Pending Status
Pending status means that everything in the transaction is set to go and all you have to do now is wait for the house to close. The seller has accepted the offer, the option period and contingencies have been satisfied, the buyer’s financing has been approved, and the repairs have been completed.
Related: Contingent vs Pending in Real Estate: What’s the Difference?
The Bottom Line
In short, an active option contract status means that the property seller has accepted the offer and the deal is in the option period. During the option period, the potential buyer can back out of the contract and receive a refund of their earnest money. They will not, however, be reimbursed for their option fee.
Be sure to engage with a knowledgeable buyer’s agent if you are buying property for the first time. They’ll be able to walk you through the ins and outs of the convoluted, jargon-filled world of real estate listings and contracts.
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