What is The Active Offer No Bump Meaning in Real Estate

25 Dec What is The Active Offer No Bump Meaning in Real Estate

The phrase “active offer no bump” is common in the real estate industry. Discovering an active offer with no bump meaning can be challenging for home buyers who are interested in a property. It refers to a situation where a property already has an accepted purchase offer, but the seller’s agent continues to market the home in hopes of getting a better offer. This practice can create confusion and frustration for buyers and sellers alike.

What is the Active Offer No Bump Meaning?

An active offer simply means the seller has accepted an offer from a buyer but has not yet closed on the sale. The buyer and seller have a legally binding contract. However, the deal is still considered “active” because the closing has not yet occurred.

Once an offer is accepted, the seller stops marketing the home and takes it off the market. This gives the buyer a period of time to complete inspections, obtain financing, and move forward with closing. During this active offer period, the seller cannot accept new offers from other potential buyers.

Why Do Agents Continue Marketing an Active Offer?

In competitive housing markets with low inventory, listing agents sometimes practice “active offer no bump.” This means they continue advertising and showing the home to prospective buyers despite already having an accepted offer.

The goal is to generate more interest and hopefully entice a new buyer to make a higher offer than the current accepted one. This allows the seller to “bump” the price and void the first contract if the new offer meets certain conditions (more on this later).

Agents do this because they want to maximize the sale price for their client. With bidding wars common, they hope increased demand will drive up the value. They want to leverage the market momentum and get the absolute highest price possible.

Pros for the Seller

As a seller, having your agent market the property with an active offer in place can lead to a better deal. Here are some potential advantages:

• Generate a bidding war – More showings andpromotion creates demand and competition among buyers. This dynamic can result in multiple offers above asking price.
• Attract better offers – An agent can leverage existing interest to make buyers up their terms – such as waiving contingencies, escalation clauses, and higher earnest money deposits.
• Create urgency – Buyers know they have competition, so they may offer over list price for fear of losing out on the home. This sense of urgency gets buyers to their highest price.
• Negotiate with leverage – With competing bids, the seller can negotiate from a position of power and leverage to get the best possible deal.
• Void first contract – If the new offer meets certain criteria, the seller can usually cancel the first accepted offer and move forward with the new buyer.

Cons for the Seller

While marketing an active offer can lead to a great sales price, there are also some drawbacks for sellers:

• Breaching contract – Accepting a new offer when one is already in place generally breaches the first purchase agreement. This can lead to lost earnest money deposits and potential lawsuits.
• Losing first buyer – The first buyer may walk away rather than increase their offer. So if new buyers don’t follow through, the seller is often back to square one.
• Delaying the sale – Introducing new offers extends timelines and can jeopardize mortgage approvals. This may delay closing or cause the deal to fall apart.
• Creating distrust – Buyers may be reluctant to make their best offer if they know they could get bumped. And they may not trust the seller to honor a future contract.
• Added stress – Renegotiating deals, voiding contracts, and starting over adds uncertainty and anxiety during an already stressful home sale.

Pros for the Buyer

Savvy buyers can also benefit from agents marketing properties with active offers:

• Negotiating power – With other buyers competing, you gain leverage to negotiate the best terms. Sellers will want to impress you to earn your business over others.
• Incentives to increase offer – Knowing your competition, you can incrementally increase your price or improve terms to beat out other bids. Sellers will often reward the best offer.
• Future backup offers – If your offer doesn’t win but remains in place as a backup, you may still get the home if the new deal falls through.
• Re-engage when relisted – The deal falling apart means the home will likely go back on the open market. You’ll already be familiar with the property and can move fast.
• Market research – Engaging in the process keeps you plugged into current home values and demand. This helps you refine future offers.

Cons for the Buyer

While sometimes beneficial, active offer marketing also poses risks for buyers:

• Waste of time/money – You can spend significantly on inspections, appraisals, and other upfront costs only to be told your offer is rejected.
• Emotional toll – Losing out after becoming emotionally invested in a home you thought you had purchased can be devastating.
• Bidding too high – You may overpay in the heat of competition. Don’t let urgency cloud reasonable judgment.
• Questionable ethics – Do you want to work with an agent who violates established contracts? Make sure you’re comfortable with their practices.
• Bad fit – The seller chose another offer for a reason – perhaps better terms or higher price. The home may not be the best option anyway.

Bump Clauses

In order for a seller to void the original purchase contract and accept a new offer, agents typically rely on a “bump clause.” This special stipulation within an offer allows the seller to exit the existing agreement if certain conditions are met by a future buyer.

Typical bump clauses require new competing offers to be at least a certain amount over the original purchase price (e.g. $5,000 higher). Funds also usually have to be “guaranteed” – meaning proof of liquid cash or lender pre-approval at the new price.

Bump clauses incentivize prospective buyers to make their highest and best initial bid to avoid getting outbid later. They also give the listing agent justification for voiding the first contract.

Is This Practice Ethical?

The ethics of marketing an active offer are controversial in real estate. While it’s not illegal per se, many argue it violates common business practices, buyer expectations, and agent codes of conduct.

Opponents contend:

• Once an offer is signed, the home should be taken off market. Continuing to show and advertise it violates the contractual spirit.
• It diminishes the sanctity of a contract. Backing out of one deal to take a better one sends the wrong message.
• Buyers expect exclusive rights once their offer is accepted. Violating this erodes trust.
• It can represent greed over fairness. Maximizing profit should not come at the expense of established agreements.

Proponents argue:

• Sellers have a right to obtain the maximum value for their home. Marketing strategies like this help achieve that.
• “Buyer beware” still applies. Buyers shouldn’t expect exclusivity until closing.
• Active marketing creates urgency needed in hot markets. Buyers unwilling to compete have unreasonable expectations.
• Bump clauses make the practice ethical. Buyers know upfront that higher offers can bump theirs.

There are good-faith arguments on both sides. Sellers and buyers should understand these perspectives and decide what practices they are comfortable with in their market.

Conclusion

The practice of marketing a property with an accepted offer in hopes of getting a better deal is divisive. When used properly, it can benefit sellers by driving up demand and sale price. But it also violates norms and creates distrust if transparency is lacking. Ultimately, all parties should educate themselves on the risks and make decisions aligned with their interests and ethics. In addition, when there is an active offer with no bump meaning, it is important to respect the original offer unless there are clear and justified reasons not to.

FAQs

What is an escalation clause?

An escalation clause is an addendum inserted into an offer that automatically increases the buyer’s bid incrementally in order to beat competing offers up to a specified limit. This helps buyers compete against properties being actively marketed without overbidding.

What are the risks of putting in an offer on a home with an active offer?

Risks include spending time and money on inspections only to be told you’re rejected, overbidding in the heat of competition, losing to multiple backup offers if your bid is accepted, and feeling exploited by unethical bait-and-switch tactics.

As a buyer, how can I protect myself when making an offer on a home being actively marketed?

Protections include using an escalation clause, insisting your offer remains valid as a backup even if you’re initially outbid, adding a kick-out clause allowing you to exit if the seller backs out of another contract, and asking sellers to agree to cease all marketing efforts once accepting your offer.

Is a bump clause legally enforceable?

In most states, bump clauses are legally valid and enforceable provided they contain reasonable, predefined conditions the new offer must meet or exceed – such as a minimum dollar amount over the current contract price. Both parties must agree to the terms.

What happens if a seller accepts a new higher offer but the original buyer refuses to terminate their contract?

The original buyer’s offer remains valid and enforceable. The seller is obligated to fulfill the existing contract unless the buyer agrees to void it. This usually leads to renegotiation or legal action. Sellers should avoid “bumping” until existing deals are terminated.