What Does "Under Contract" Mean in Real Estate? Explained

Key Highlights

• "Under contract" in real estate means a seller has accepted an offer, but the sale isn't final until all contingencies are met.

• It usually takes 4–8 weeks for a sale to close after an offer is accepted.

• Contingencies protect buyers, allowing them to back out if certain conditions are not met.

• Common contingencies include financing, appraisal, home inspection, and home sale contingencies.

• "Active under contract" means the seller is still accepting backup offers.

• "Pending" status indicates most contingencies have been met, and the sale is nearing completion.

Introduction to What does under contract mean in real estate?

Buying a home can feel overwhelming, like learning a new language. Knowing the right words is very important, especially a term like "under contract."

This blog post will explain what "under contract" means. It will also share what this means for buyers and sellers. Plus, it will answer some common questions about this key term in real estate.

Understanding the Term "Under Contract" in Real Estate

In real estate transactions, a property is "under contract" when the seller accepts a buyer's offer. This is an important step in buying a home because both sides enter a legal agreement in a real estate contract.

But keep in mind that being "under contract" does not mean the sale is complete. The sale depends on meeting certain conditions, called contingencies, that are detailed in the contract. These contingencies help protect the buyer's interests. They allow the buyer to back out of the deal if certain requirements are not met.

Defining "Under Contract" in the Home Buying Process

When a house is labeled "under contract," it means the seller has accepted an offer from a potential buyer. They have signed a purchase contract. This contract lays out the terms of the home sale. It includes the purchase price, closing costs, and the expected closing date.

In addition, the buyer usually gives an earnest money deposit. This shows their serious intent to buy the home. The deposit goes into an escrow account. It often counts toward their down payment when closing.

Still, the sale's completion depends on meeting certain conditions in the contract. These conditions protect both parties. They cover important areas of the deal, like financing, appraisal, and home inspection, to make sure the buyer is satisfied.

The Significance of Being Under Contract for Buyers and Sellers

For buyers, being under contract is an exciting time. They are now closer to owning their new home. This stage lets them do important checks, like inspections and appraisals. This ensures the property meets their needs and matches the sale price.

For sellers, the "under contract" status gives peace of mind. It shows that they have accepted an offer and are moving toward completing the sale. This stage helps them plan their next steps, like finding a new home or making arrangements based on the closing date.

However, the "under contract" phase can have challenges. If certain agreements aren’t met, the deal might not go through. It's vital for both buyers and sellers to understand how to handle these conditions during this period.

Key Differences: Under Contract vs. Pending vs. Active Under Contract

In real estate, the terms "under contract," "pending," and "active under contract" mean different things. These differences can confuse buyers and sellers, but knowing them is important for a real estate transaction.

"Under contract" means the seller has accepted an offer, but the sale depends on certain conditions being met. "Pending" shows that most of these conditions have been met, and the deal is getting closer to being finished. Lastly, "active under contract" means the property is under contract, but the seller is still open to backup offers. According to January 2022 data from the REALTORS® Confidence Index Survey, around 7% of real estate contracts are terminated.

Clarifying "Active Under Contract" and Its Implications

When a property is marked as "active under contract," it means the seller has accepted an offer. However, the seller is still open to backup offers. This status helps the seller in case the first deal does not work out because of issues that were not resolved.

"Active under contract" is different from "pending status." In a pending sale, the seller usually does not accept backup offers. This is because the sale is close to completion and unlikely to fall through. On the other hand, with an "active under contract" property, there is a higher chance that the first deal might fail. This makes the seller consider other offers.

So, if you find a property you really like that is labeled "active under contract," don’t feel down. You can still make a backup offer. This offer could become the main one if the first contract doesn’t work out.

Comparing "Pending" Status to "Under Contract"

"Pending" status marks a significant milestone in a real estate transaction, indicating that the deal is further along than "under contract." At this stage, the buyer has typically addressed most contingencies, and the final sale is approaching. Let's break down the key differences:

Features	Under Contract	Pending Sale
Offer Acceptance	Accepted	Accepted
Contingencies	Most remain	The majority addressed or waived
Backup Offers	Typically accepted	Usually not accepted
Time to Closing	Further out	Closer to finalization
Likelihood of Falling Through	Higher	Lower

When a property transitions from "under contract" to "pending," it signifies that the buyer is nearing the finish line. While the deal is not finalized until closing, the pending stage represents a significant step towards an acceptable offer becoming the final sale.

The Role of Contingencies in Under Contract Properties

Contingencies are important parts of a real estate contract. They help protect the buyer's interests. These conditions let the buyer cancel the purchase if certain needs are not met. This helps keep their earnest money deposit safe. Some common contingencies are financing, appraisal, home inspection, and home sale.

For example, an inspection contingency gives the buyer time to carry out a complete home inspection. They can find any possible problems with the house. If the inspection shows big issues, the buyer can ask the seller to fix them or drop the deal without any cost. A financing contingency works the same way. It allows the buyer to step back if they can't get the needed funding for the purchase. Generally speaking, the under-contract status lasts 30 to 60 days.

How Inspection Contingencies Can Affect the Sale

An inspection contingency is a key part of a real estate contract. It helps the buyer by allowing them to have a professional home inspection. This inspection checks the property's condition in detail.

During this time, a licensed home inspector looks at the structure, systems, and safety of the house. The report from the inspection helps buyers know what’s really going on with the property. If the inspection finds big problems, the buyer can ask for repairs. They can also negotiate the purchase price or decide to back out of the deal.

This inspection contingency is good for both sides. It ensures that everything is clear and helps make the deal fair. Sellers can fix issues early, which speeds up the sale. Buyers feel more secure knowing they are investing in a home that meets their needs.

The Importance of Financing and Appraisal Contingencies

Getting financing and a good appraisal are important steps in buying a home. Contingencies related to these areas help protect buyers from money issues. A financing contingency lets buyers back out if they can’t secure a mortgage loan. This keeps them from being stuck with a home they can't pay for.

An appraisal contingency helps buyers avoid paying too much for a property. A professional appraiser tells them its market value. If the appraisal is lower than the sale price, the buyer can talk to the seller to negotiate or decide to withdraw from the sale.

These contingencies protect the buyer’s financing and make sure they are paying a fair price for the home. For sellers, meeting these contingencies increases the chance that the sale will go smoothly.

Also Read - How will Medicaid know if I sell my house?

Navigating Challenges: From Under Contract to Closing

Moving from "under contract" to closing involves important steps and some challenges. Both parties want to have a smooth closing, but surprises can come up. These surprises need good communication and skills to solve problems.

Challenges like appraisal differences, funding problems, or unexpected repair costs can delay or even stop a simple real estate transaction. During these times, having skilled real estate agents and legal experts is very helpful. Their knowledge helps to solve issues, negotiate solutions, and keep the transaction moving closer to the finish line of the deal.

Potential Roadblocks in the Final Stages

Even when a home is under contract, surprises can happen. These surprises can disrupt the closing process. Problems like title issues, unknown liens on the property, or changes in the buyer's money situation can make things difficult in the final stages.

During these unexpected times, clear communication is very important. The buyer, seller, and their agents should talk openly. This can often help prevent problems before they become big issues.

To handle these tricky situations, getting help from experienced real estate professionals is very important. This includes real estate lawyers. Their knowledge can help explain contract details, look at other options, and give good advice to both the buyer and seller. This way, their interests are protected.

Tips for Keeping the Deal on Track

Both buyers and sellers can take a few simple steps to make closing easier. This will help change an "under contract" agreement into a done deal. For buyers, it’s important to stay organized and be quick to respond. They should meet all deadlines. This means giving any needed documents to the lender on time, going to the inspection, and carefully reviewing all closing documents.

For sellers, keeping open communication with their agent is key. They should quickly deal with any issues related to repairs or disclosures. Keeping the property in good condition and being flexible with walkthrough dates can help make the process easier.

Good communication and honesty between both sides and their agents play a big role in successful closings. By tackling any problems ahead of time, staying organized, and keeping to deadlines, both buyers and sellers can make their real estate transactions end well.

Also Read - Why do Home Sellers Prefer all-cash offers?

Conclusion

In conclusion, knowing what "under contract" means in real estate is very important for buyers and sellers. It marks an important step in the home-buying process. This status can affect things like inspections, financing, and closing.

Understanding the differences between "under contract," "pending," and "active under contract" can help you set the right expectations and handle any issues. If you need more help with real estate transactions or have questions, feel free to reach out to our experts for personalized support.

Sell your house fast and hassle-free with Ninebird Properties—your trusted cash home buyer in Dallas- Fort Worth.

Get a fair cash offer today!

FAQs Addressing Common Concerns and Misconceptions About Under Contract Status

What Happens If a Buyer Wants to Back Out After Going Under Contract?

If a buyer decides to back out after signing a contract without a good reason listed in the agreement, such as not meeting the necessary conditions, they might lose their earnest money deposit. It is very important to know the terms of the current contract before deciding to back out.

Can Sellers Accept Other Offers While Under Contract?

Yes, if the property is "active under contract," sellers can choose to accept backup offers. This helps them look at other options if the original buyer's contract does not work out.

How Long Does a House Typically Stay Under Contract?

A house usually stays under contract for about 30 to 60 days. This time can change. The actual closing date depends on things like satisfying contingencies and the real estate market.

What Should Buyers Do If Their Contract Falls Through?

If a buyer's contract does not go through, it is important to talk with their real estate agent to find out what to do next. They can look into backup options, change the current deal, or begin looking for a new home.

Are Buyers Obligated to Purchase If Major Issues Are Uncovered During Inspection?

A home inspection contingency is important for buyers. It helps them. If serious problems show up, buyers can walk away. They can also renegotiate the price for the needed repairs. Additionally, they can ask the seller to fix important defects before the sale is final.