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What “Active Option Contract” Means in Real Estate

November 01 2018
by Leisl Bailey

People at desk working on a contract.

Real estate lingo can be confusing, especially when you are looking for a house on the multiple listing service to buy and don’t know if you can still put an offer in on the house. One particularly confusing status is active option contract (AOC).

While your real estate agent should be able to help you with most of the real estate vocabulary, we’re here to tackle the active option contract.

What is an active option contract?

When a seller lists their home for sale, they’ll typically receive several offers. Until the seller has accepted an offer, the housing status is listed as active. That is the time period during which anyone can make an offer on the house and be considered.

In Texas, once the seller accepts an offer, the buyer will have the option of paying for a small window of time to do their due diligence and have the option of backing out and still getting their earnest money back. If the buyer agrees to that, then they are under what is called the active option contract.

Option Contract Process

Still confused? Let’s go into a bit of a deep dive.

When the seller accepts the buyer’s offer, the buyer gives the seller an earnest money deposit to hold their spot. The earnest money is usually 1%-2% of the home purchase price.

Earnest money is only refundable if the buyer or seller backs out of the contract for any reason outlined in the contract. If the reason they back out isn’t in the contract and the deal falls through, the seller gets to keep the money. If the sale goes through, the earnest money goes toward the sale price of the house.

Once the seller saves the buyer’s spot, it’s time to do some investigating on the property. In Texas, you must have an active option contract if you want the option of getting a home inspection and the ability to back out of the sale with your earnest money intact if the inspection turns up something that neither the buyer or seller are willing to take care of.

If you decide to go with an active option contract and get an inspection, you as the buyer must pay an option fee. The option fee ranges from $100 to $200 and gives the buyer time to do a thorough inspection before going through with the sale. The fee is non-refundable until the end of the contract, at which point the money typically goes toward the sale of the property.

This inspection period, also known as the option period, typically lasts anywhere between 5 and 10 days.

The buyer may choose to back out of the deal during the option period and still get their earnest money back. They won’t, however, get their option fee back. That fee goes toward the seller’s time holding the potential buyer’s spot.

Should I opt in to my active option contract?

An active option contract allows time for the buyer to properly complete their inspection and give them peace of mind as they continue with the sale. If they waive that right, they may end up with unforeseen damages to the house down the road. These damages could be more than the option fee itself and if found before the house closes, you could lose your earnest money if you back out.

Can I make an offer on an active option contract listing?

As long as the status hasn’t changed from active option contract to pending, potential buyers may still make an offer on the house. The listing agent will carry that offer to the seller, who can choose to accept it as a backup offer only. The original buyer under the active option contract takes priority over any other offer—including better offers.

If you are thinking about making an a backup offer on an active option contract, you are going to need a stellar agent in your back pocket. A local real estate market expert will help your offer rise to the top of the sellers mind if the deal should fall through.

Real Estate Listing Statuses

There are quite a few listing statuses potential buyers and sellers need to be on the lookout for when they go to buy or sell their home. Beyond active options contract, here are some others with what they actually mean, specifically in Texas.

Active

An active listing means the property is still on the market and the seller is accepting offers. It doesn’t mean there haven’t been any offers yet, it just means the buyer has no offer that they’ve accepted.

Active Contingent Status

When a house is listed active contingent status, it means a buyer has made an offer that the seller has accepted, but the buyer must sell their home before they can purchase the property.. There are two subcategories of active contingent statuses that you should know.

Active Contingent with Kickout

This means the seller has accepted the buyer’s offer but is still accepting backup offers until the buyer sells their house. If the seller receives another offer that they want to go through with, the buyer can either waive the contingency or back-out of the sale.

Active Contingent without Kickout

This status means the sale is contingent upon the buyer selling their house, but the seller is not accepting back up offers.

Pending Status

Pending status is where everything is ready to go in the sale and you are just waiting on the close of the house. To get to this stage, the seller accepts the offer, the option period and contingencies are complete to satisfaction, the buyer’s lending has come through and repairs are done.

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Want to make a backup offer on an active option contract house? You’re going to need a top agent to help with that. You need a Clever partner agent. Clever partner agents are some of the best in your area—and they’re there to serve you. Call us today at  1-833-2-CLEVER or fill out our online form to start.