What Does Going Under Contract Mean?

Going “under contract” means a seller has accepted an offer from a buyer, and both parties have signed a legally binding purchase agreement. This phase indicates that the home is effectively off the market, but the sale is not yet final. The period while a property is under contract allows time for various conditions, known as contingencies, to be met before the transaction can be completed. It typically takes several weeks for a sale to move from being under contract to being finalized.

Understanding “Under Contract”

For the buyer, going “under contract” means their offer was successful, and they can begin the process of due diligence, such as securing financing and conducting inspections. For the seller, an “under contract” status means the property is no longer actively being marketed for new offers, although in some cases, backup offers may still be accepted, especially if the listing is “active under contract.” While a commitment has been made, the sale is not yet complete, as it depends on the fulfillment of specific conditions outlined in the agreement. This phase is distinct from “pending,” which typically means all contingencies have been met, and the sale is closer to closing.

Key Elements of the Purchase Agreement

The purchase agreement is a legally binding document that outlines the terms and conditions of the sale. This agreement identifies the buyer and seller, along with a precise description and legal address of the property being purchased. It clearly states the agreed-upon purchase price.

A crucial element included is the earnest money deposit, a sum paid by the buyer to demonstrate serious intent to purchase. This deposit, typically 1% to 3% of the home’s sale price, is held in an escrow account until closing and is usually applied toward the buyer’s down payment or closing costs.

The agreement also specifies the target closing date and details any inclusions or exclusions, clarifying what items, such as appliances or fixtures, are part of the sale.

Common Contingencies

Contingencies are conditions that must be satisfied for the real estate contract to proceed to closing. These clauses protect both buyers and sellers by allowing them to withdraw from the contract without penalty if specific terms are not met. The most frequent types of contingencies encountered in real estate transactions include financing, inspection, and appraisal.

Financing Contingency

A financing contingency allows the buyer to back out of the deal without losing their earnest money if they cannot secure the necessary mortgage within a specified timeframe, often 30 to 60 days.

Inspection Contingency

The inspection contingency grants the buyer the right to have the property professionally inspected, typically within 7 to 10 days of offer acceptance. If the inspection reveals significant issues, the buyer can negotiate repairs, a price reduction, or cancel the contract and receive their earnest money back.

Appraisal Contingency

An appraisal contingency ensures that the property appraises for at least the agreed-upon purchase price. If the appraisal comes in low, the buyer can renegotiate the price, pay the difference in cash, or withdraw from the deal and retain their earnest money.

Home Sale Contingency

A less common but important home sale contingency means the buyer’s purchase is dependent on the sale of their current home within a set period.

Activities During the Contract Period

Once a property is under contract, both buyer and seller engage in specific activities to satisfy the agreed-upon contingencies. The buyer promptly schedules a professional home inspection, which typically occurs within the first 7 to 10 days of the contract period. During this time, the seller facilitates access to the property for the inspector and any other specialists required.

Following the inspection, if issues are identified, the buyer may initiate negotiations with the seller for repairs or a price adjustment. Concurrently, if the buyer is obtaining a mortgage, they work closely with their lender to submit all required documentation for loan approval. The lender will then order an appraisal of the property to confirm its market value.

Throughout this period, both parties diligently work towards fulfilling their respective obligations, with the buyer formally removing or waiving contingencies once they are satisfied.

The Path to Closing

After all contingencies are met, the contract becomes firm, leading to closing. The buyer receives final loan approval from their lender, solidifying their financing for the purchase.

A title search is conducted to ensure there are no liens or ownership disputes, and title insurance is finalized to protect the buyer and lender. Shortly before closing, typically within 24 to 48 hours, the buyer conducts a final walkthrough of the property. This walkthrough verifies that the home is in the agreed-upon condition, any negotiated repairs have been completed, and all included items remain.

Finally, both parties gather with their agents, and often a closing agent or attorney, to sign numerous legal documents, transfer funds, and officially transfer ownership of the property, with the buyer receiving the keys.