I receive a lot of real estate related questions. Each month, I’ll share a selected topic with you. Hope you enjoy reading them as much as I enjoy writing them!
Q: What do different listing status mean?
A: When a home is listed in the MLS for sale, it is an ACTIVE listing. When real estate agents and home buyers search for homes, they are most interested in these listings, because they are readily available.
When a home seller receives a written offer from a buyer, the seller may accept, reject, or make a counteroffer. If the negotiation is successful and both parties reach an agreement on price and all terms, both parties should sign the purchase contract and a mutually binding contract is thus achieved. At this point, it’s best to not refer to this agreement as an “offer” anymore. It is now a “contract”. The seller cannot sell this home to another buyer. A seller can receive multiple “offers”, but can only have one “contract”.
This is when a listing status is changed to PENDING. The home is technically off the market now and there are no more showings. Sometimes people call this “contract pending”. But it really means “under contract pending closing”. The home has a buyer, but the buyer is usually not ready to buy the home just yet. There are conditions that must be met first. These are referred to as “contingencies”. It is like when we say “Pool party this Saturday, weather permitting”. The “weather permitting” equivalent in a real estate transaction are the contingencies. The usual ones are inspection contingency (does the home have defects), appraisal contingency (does the home have market value at least that of purchase price), and financing contingency (can the buyer successfully get a loan to buy the house). Sometimes there are more complicated contingencies. One example is when the buyers must sell their old home first, before they can buy the new one.
Every one of these contingencies must be successfully satisfied and removed, before there can be a closing. Otherwise, the contract may get cancelled and the deal “falls through”. This is always a risk. That’s why we call the listing status “PENDING”, and not “SOLD”. Often sellers say their home is “sold”, and buyers say they “bought” a home, when in fact it’s just under contract. Only when the closing has occurred and the title has transferred, do we say a home is “sold”.
So what if a Seller is uncomfortable with taking her home off the market for 2 months only to have the deal fall through? She can solicit a backup buyer. Our MLS allows a listing status “ACTIVE WITH CONTRACT” for a contract that still has outstanding contingencies AND the Seller wants a backup contract. It’s important to note, a backup contract is a substitute only if the primary contract dies. The arrival of the backup does not displace the primary contract (that would be a different matter involving a kick-out provision). If you are a seller and want a backup, be sure your agent handles it properly, so you don’t end up in a legal quagmire of being obligated to sell your home to multiple buyers.
Finally, when a transaction has successfully closed and the title transferred, the home is SOLD. This is when the sale price becomes a matter of public record and everyone can find out how much a home sold for. This record becomes a legitimate value basis of future sales and appraisals in the neighborhood. A low sale can hurt the neighborhood value. A high sale can help increase the value.
Okay I will stop here. As always, keep sending me your real estate questions.
Until next month, take care!