Buying or selling a home can be an exciting yet stressful process. As a buyer, you likely want the best deal on your dream home. As a seller, you hope to get top dollar for your property. One common scenario that arises during negotiations is the “active offer no bump.” Here’s an in-depth look at what this means and how it impacts real estate transactions.
What Is An Active Offer No Bump?
An “active offer no bump” refers to a situation where the seller has received and accepted an offer from a buyer, but continues to market and show the home in hopes of procuring a better deal.
If the seller does get a new, higher offer, called a “bump,” they cannot accept it. The original buyer’s offer remains active and binding. The seller must turn down any bump offers that come in.
Essentially, by accepting the original offer, the seller agrees not to bump the buyer for a better deal later. This provides some protection to the buyer and locks in the sale price. However, the seller still retains the right to continue listing the home.
Why Do Sellers Make Active Offer No Bump Agreements?
There are a few key reasons why a seller may accept an offer but decline any bumps:
1. To assess market demand
By keeping the home on the market, the seller can determine how much interest and what offers come in. This helps them evaluate if the original offer truly reflects current market value. The seller is trying to get the highest price.
2. In rapidly shifting markets
In hot markets where home values escalate quickly, prices could rise significantly in a short timeframe. The seller hopes to capitalize on increasing demand.
3. As a negotiation tactic
Some sellers use active offers to bring other buyers to the table. By alerting potential buyers that an offer is on the table, it creates a sense of competition and urgency. However, the seller is still obligated to the original buyer.
4. To allow time to find another home
Occasionally, sellers want the security of an accepted offer, but need time to purchase their next home. By extending the home search, they ensure they aren’t left without a place to live if the deal falls through.
Pros For Buyers
While active offer no bump agreements favor the seller, there are some advantages for buyers as well:
1. Locks in the purchase price
With an active offer, the buyer doesn’t have to worry about being outbid later for a higher amount. Their offer price is secured.
2. Negotiation power
Buyers can leverage an active offer to negotiate for other terms, like closing dates, repairs, or inclusions. Sellers may be more flexible on these aspects.
3. Potentially inhibits other offers
Since the seller cannot accept a bump, some prospective buyers may be deterred from writing offers once they learn one is already in place. This reduces competition for the original buyer.
4. Added time for contingencies
If the buyer needs time to sell an existing home, finalize financing, or conduct inspections, keeping the original home on the market allows this flexibility.
5. Opportunity to back out
If issues do arise during the contingency period that make the buyer no longer want the home, the active status gives them an “out” with fewer repercussions.
Cons For Buyers
On the other hand, active offer no bump terms do present drawbacks and risks for buyers:
1. Stronger offers could come in
While the seller cannot accept a higher offer, the buyer may have overpaid if the home appraises for less or attracts lots of interest above the purchase price. This can lead to buyer’s remorse.
2. Potentially lengthy extension
The seller controls how long they continue to market the home. The buyer may prefer a quicker close but has to wait weeks or months longer.
3. Risk of deal collapse
If the seller does get a new offer without contingencies, they may attempt to void the original contract. The deal could fall apart despite the buyer’s efforts.
4. Inspection issues undiscovered
Since the seller can still show the home, defects or problems may go unnoticed or develop during the extended period between offer and closing.
5. Increased pressure and competition
Some buyers may feel like they are bidding against invisible competitors during the active contingent period, adding uneasiness.
Crafting A Strong Active Offer As A Buyer
If you do decide to place an offer on a home with an active no bump in effect, here are some tips to gain an advantage:
- Act quickly – Be prepared to move fast when a new listing comes on the market. Be the first offer so the seller cannot shop for better ones.
- Offer over list price – Providing an offer above asking shows you are serious and see value in the home. Don’t lowball then hope to negotiate up.
- Minimize contingencies – Don’t bog down the deal with excessive inspection, appraisal, or financing contingencies. Waive what you can live without.
- Earnest money deposit – Put down as large of a deposit as you can afford to demonstrate commitment and financial capability.
- Personal letter – Write a letter to the sellers to humanize yourself and explain why you love their home. Tug on their emotions.
- Bridge the gap – If you really want the home, be willing to meet the seller in the middle on price or terms to secure the acceptance.
Key Terms In Active Offer Agreements
Active offer no bump contracts contain precise language to protect both parties. Here are some key phrases to understand:
- Right to continue to show – Allows the seller to keep listing and marketing the home after accepting the buyer’s offer.
- No bump clause – States the seller cannot accept any subsequent offers for a higher amount after agreeing to the original purchase price.
- Bump definition – Specifies what constitutes a bump, such as a full-price offer without contingencies or a higher dollar amount.
- Offer expiration – Indicates when the buyer’s offer will expire if no mutual acceptance agreement is signed.
- Contingency conditions – Lists any contingencies the buyer requires, like financing approval, home inspection, or appraisal.
- Earnest money – Specifies the dollar amount the buyer will provide upon mutual acceptance to demonstrate commitment. This is deposited with a third party.
- Default clauses – Details conditions which could allow either party to cancel the contract without penalty, such as failure to secure financing.
The Active Offer Process Step-By-Step
Executing an active offer no bump transaction involves strategic coordination between buyer, seller, and real estate agents. Here is how it typically plays out:
- Buyer submits offer
After viewing the home, the buyer presents their initial offer and earnest money deposit. This kicks off negotiations.
- Seller accepts active offer terms
The seller agrees to the offer price and conditions but retains the right to continue marketing the home. Any bump offers will be declined.
- Home remains on market
The “pending” status is disclosed to agents. Open houses and showings proceed. Marketing terms depend on the agreement.
- Offer becomes binding
If no other offers come in by the deadline, the active offer becomes fully ratified. Earnest money is released to the seller.
- Buyer completes contingencies
Within the allotted timeframe, the buyer arranges financing, completes inspections, sells their existing home if needed.
- New offers rejected
During this period, the seller cannot consider better offers received. They uphold the active status.
- Closing date approaches
As the closing date nears, the buyer and seller sign final paperwork and prepare to exchange funds and keys.
- Buyer and seller close
On the agreed closing date, the sale is finalized. Title transfers to the buyer in exchange for the remaining purchase funds.
Conclusion
The active offer no bump scenario adds unique complexity to real estate deals. Sellers try to capitalize on market shifts while balancing contract commitments. Buyers face pressure from invisible competition and tightened negotiation power.
Yet when utilized strategically, an active contingent offer can benefit both parties. Sellers get peace of mind with a solid backup option. Meanwhile, buyers lock in a purchase price and get extra time to finalize plans or inspect the home thoroughly.
By understanding active status terms, hiring experienced agents, acting decisively, and negotiating intelligently, buyers and sellers alike can utilize active offer no bump situations to successfully navigate hot housing markets and maximize returns. The process requires patience, planning and persistence, but the payoff can be well worth the effort.
FAQs
Q: What happens if a non-contingent bump offer comes in?
A: Typically the seller must still honor the original active contingent offer. However, they may be able to negotiate exiting the deal.
Q: Can a seller accept a lower offer after getting a higher one?
A: No, the higher offer essentially nullifies the active status. At that point it becomes a multiple offer situation subject to normal terms.
Q: Does a buyer relinquish all negotiation power with an active offer?
A: Not necessarily. Savvy buyers can still negotiate terms of the deal like closing date, repairs, and inclusions in their favor.
Q: What happens if the buyer’s financing falls through?
A: Unless the agreement states otherwise, the buyer would have to forfeit the earnest money deposit as a penalty. The seller could then move on.
Q: Can buyers withdraw their offer if it remains active too long?
A: Buyers should negotiate an “offer expiration” clause allowing them to cancel after a certain date if no mutual acceptance agreement is signed.
