What Does a Home Under Contract Mean?

A home reaching “under contract” status marks a significant step in the real estate transaction. This phase indicates a buyer and seller have agreed upon sale terms, moving beyond initial negotiations. The “under contract” period is a legally binding stage allowing both parties to fulfill specific conditions before ownership officially changes.

Understanding Under Contract Status

When a home is designated as “under contract,” it signifies a formal purchase agreement has been signed by both buyer and seller. This agreement outlines the purchase price, financing terms, and a timeline for various actions, making the sale conditional but legally enforceable. Unlike an “active” listing, an “under contract” property is effectively off the market, awaiting satisfaction of agreed-upon terms.

This stage is distinct from a “sold” status, as the transaction is not yet complete and could still fall through if certain conditions are not met. A common financial component is the earnest money deposit, typically 1% to 3% of the purchase price, which the buyer places into an escrow account. This deposit demonstrates the buyer’s serious commitment and provides a financial safeguard for the seller if the buyer defaults without a valid reason.

Common Contingencies

Purchase agreements frequently include contingencies designed to protect both buyer and seller, allowing specific conditions to be met before the sale is final. A financing contingency permits the buyer to withdraw without penalty if unable to secure the necessary mortgage loan within a specified timeframe. This protects the buyer from financial obligation if their loan application is denied.

Another common provision is the inspection contingency, granting the buyer the right to have the home professionally inspected for defects or necessary repairs. If significant issues are discovered, the buyer can request repairs, a reduction in price, or terminate the agreement if an amicable solution cannot be reached. An appraisal contingency ensures the property’s appraised value meets or exceeds the agreed-upon purchase price. Lenders require an appraisal to ensure the loan amount does not exceed the property’s market value, protecting both lender and buyer from overpaying.

A home sale contingency is less common but allows a buyer to make their purchase conditional upon the sale of their current residence. This protects the buyer from carrying two mortgages simultaneously. If any agreed-upon conditions are not fulfilled within the stipulated period, the contract may be renegotiated or terminated, often allowing the earnest money to be returned to the buyer.

Actions During the Contract Period

Once a home is under contract, specific actions commence to satisfy agreed-upon contingencies and move the transaction forward. The buyer typically proceeds with their loan application, working closely with their lender through underwriting to secure final mortgage approval. This involves submitting extensive financial documentation, including income verification, asset statements, and credit history.

Simultaneously, the buyer arranges for professional home inspections, often including general home inspections, as well as specialized assessments for pests, radon, or structural integrity. Findings from these inspections can lead to further negotiations between buyer and seller regarding necessary repairs or credits. The buyer’s lender also initiates the appraisal process, ordering an independent valuation to confirm the property’s market value.

During this period, a title search verifies the property’s ownership history and identifies any liens or disputes that could affect clear title transfer. Title insurance is purchased to protect both buyer and lender against future claims concerning ownership. An escrow agent plays a central role in managing all funds and documents, ensuring contractual obligations are met before ownership transfer. This coordinated effort typically unfolds over several weeks, adhering to strict timelines outlined in the purchase agreement.

Moving Towards Closing

As the various conditions of the purchase agreement are met, the transaction progresses to its final stages leading to closing. Contingency removal is a formal process where the buyer or seller provides written notice that a specific condition, such as the inspection or financing contingency, has been satisfied or waived. This step effectively solidifies the commitment of both parties to complete the sale.

The buyer receives final loan approval from their lender, signifying all underwriting requirements have been met and funds are ready for disbursement. Before official closing, the buyer typically conducts a final walkthrough of the property, usually within 24 to 48 hours, to ensure the home is in the agreed-upon condition and any agreed-upon repairs have been completed. Closing day involves all parties signing numerous legal documents, including the promissory note, mortgage or deed of trust, and the closing disclosure, detailing all financial aspects and closing costs.

Funds are transferred from the buyer’s lender and accounts to the seller. Once all documents are signed and funds disbursed, the deed is officially recorded with the local government, legally transferring ownership of the property from seller to buyer. This final recording marks the successful completion of the “under contract” phase and the official sale of the home.