Like any profession, real estate has its own jargon that people outside the industry don’t always understand. Online listings include terms that indicate the status of a property which can be confusing to buyers.
We asked Laura Schwartz, real estate agent at McEnearney Associates in McLean, Va., And Meredith Margolis, real estate agent at Compass in Washington, to explain some of these terms. They both responded by email. Their answers have been modified.
Q: What does it mean when a home is labeled “on hold” or “under contract with a referral clause” in an advertisement?
Schwartz: Our Multiple Listing Service (MLS) has two statuses to indicate that a contract has been accepted for a home. “Assets under contract” means that there are contingencies in place and the house can still be shown to accept backup offers. It is important to note that in many states, a seller cannot cancel a contract once it is accepted in writing. Only the buyer can cancel a contract. “Pending” means that a seller has accepted a written contract and no longer wants the house to be shown. Usually, in practice, this means that all eventualities have been met.
Margolis: If a property is on hold or under contract, the emergency periods have passed and / or the property is being successfully settled. If a property is contracted with an exclusion clause, it means that the property is under contract and the buyer of that property may be kicked out of the contract if he does not meet the criteria mutually agreed upon in the contract. A common referral clause is usually for a contract of sale that depends on the sale of another property.
Q: What other ad statuses are reported and what do they mean?
Schwartz: An “active” list is fully available and no contracts have been accepted. When a home is listed as “temporarily off-market” it usually means the seller needs the home not to be available for viewing. This could be because it’s not ready to be shown, they have visiting guests, or they are packing for a move. When a property is “retired” it means that the property has been taken off the market, but an active listing agreement is still in place. A “canceled” status means that the property has been taken off the market and the listing contract has been terminated or the contract has expired.
Margolis: An “active” status means that the property is for sale and available. Once a property receives an offer with one or more contingencies and is accepted, that property is “active under contract”.
Q: What is an exclusion clause and how does it work?
Schwartz: A “kick-out” clause usually means that there is an eventuality of a home sale – meaning a buyer has to sell their home in order to purchase the home under contract. This possibility can be “kicked out” if a seller gives them a formal notice and the buyer is unable or unwilling to proceed without this protection. If the buyer chooses to opt out, the second offer will go first and proceed as they normally would with any other contract. Our MLS statute, however, is somewhat confusing and misused: “Active under contract” does not necessarily mean that there is a referral clause, it can be a number of contingencies such as a home inspection, appraisal, homeowners association document review, etc., not all of which can be used by a seller for a “kick-out” option.
The other type of “kick-out” clause is to protect a seller. This is called an “emergency home of choice” and basically it gives the seller some time to find a new home to buy or they don’t have to sell their current home and the contract is canceled. In a market like the one we just went through, this has probably been used a few times. You need a flexible buyer who can wait for the time (sometimes 30-45 days) because during that time they go through all the regular contingencies – inspection, appraisal, HOA review, etc. But at the end of the day, if the seller can’t identify a new home, buyers have to start over.
Q: How does a return clause affect buyers and sellers who have signed a contract?
Schwartz: When a referral clause is accepted, the contract specifies how many days a buyer has to list their home for sale and how many days they will have to respond if a seller receives another offer and gives notice to the buyer. first the buyer to remove the possibility of selling the house or canceling the contract. The original buyer can choose to go ahead with the original contract by removing the referral clause or they can cancel their contract and be released in accordance with the terms of their contract.
In the event of a home of the seller’s choice, the buyer cannot cancel. They just have to wait for the time they agreed to in the contract. Their opportunity cost is all the other homes that can come on the market during the time they wait.
Margolis: A referral clause gives the seller some protection and flexibility and helps the buyer get the time they need to sell their home in order to qualify for the next purchase. Maybe a buyer will pay a premium for this home sale contingency he is offering. The seller benefits from the higher contract price and if the buyer sells a house in a favorable area for the right price, it could be beneficial to both parties.
There is specific language in the sales contract that provides a roadmap for how a seller might end their primary contract, if another stronger offer is submitted and the seller prefers to work with that secondary offer.
Q: Are exclusion clauses common?
Schwartz: It depends on the market. In a seller’s market, it is unusual for a seller to accept a referral clause, primarily because when faced with multiple offers to choose from, the additional risk of a referral clause is seldom assumed. In a buyer’s market, where homes may take longer to sell, a seller may consider a referral clause if they have no other options.
Another thing to note, we have the option, as a listing agent, to enter this information in an advertisement. If a seller does not want to consider a possible home sale, we can note that in the ad.
In a market like the one we just went through, I saw some choice eventualities at home. You have buyers who were anxious to do whatever they needed to do, so asking them to wait a few weeks wasn’t such a big favor as it might be in another market.