What Does House for Sale Under Contract Mean?

A house listed as “under contract” indicates a significant stage in the real estate transaction process. This status often causes confusion, as it signifies a property is no longer actively available, though not yet fully sold. Understanding what “under contract” truly means and its implications is important for both buyers and sellers navigating the housing market.

What “Under Contract” Means

A property marked “under contract” signifies that a buyer and seller have reached a mutual agreement on the terms of sale, and the seller has accepted the buyer’s offer. This acceptance forms a legally binding purchase agreement, moving the property from an “active” listing to a pending sale. While an offer has been accepted, the transaction is not yet complete and remains contingent upon several conditions being fulfilled. These conditions typically include various checks and approvals before ownership transfer.

Unlike an “active” listing, an “under contract” status means the seller is generally committed to the current buyer. The property is effectively off the market, awaiting fulfillment of agreed terms. This stage precedes the “sold” status, which indicates the successful completion of the transaction, with all conditions met, funds exchanged, and the property’s title transferred to the new owner. The period a home spends under contract allows for necessary due diligence and financial arrangements.

Common Contingencies

During the “under contract” phase, several common contingencies typically protect both the buyer and seller. An inspection contingency allows the buyer to conduct a professional home inspection within a specified timeframe, often 7 to 14 days. If the inspection reveals significant issues, the buyer may negotiate repairs with the seller, request a price reduction, or, if an agreement isn’t reached, terminate the contract without penalty. This ensures the buyer knows the property’s condition before finalizing the purchase.

A financing or appraisal contingency protects the buyer if they cannot secure the necessary loan or if the home’s appraised value is less than the agreed-upon purchase price. Lenders require an appraisal to ensure the property’s value supports the loan, typically completed within weeks of contract acceptance. Should the appraisal come in low, the buyer might renegotiate the price, pay the difference in cash, or withdraw from the agreement if the lender refuses to finance the full amount. This safeguards the buyer from overpaying and the lender from over-lending.

Another common contingency is the sale of the buyer’s current home, making the purchase dependent on their existing property’s sale. This contingency provides the buyer with an exit strategy if their current home does not sell within a predetermined period, often 30 to 60 days. While convenient for the buyer, this contingency can make a seller’s position less secure, as the transaction’s completion relies on another separate sale. Sellers might continue to show the home and accept backup offers under such circumstances.

Steps During the Contract Period

Once an offer is accepted and the property is “under contract,” several important steps typically unfold before the sale can close. The buyer usually submits an earnest money deposit, often 1% to 3% of the purchase price, to an escrow account within a few days of contract signing. This deposit demonstrates the buyer’s commitment and is held by a neutral third party, such as a title company or real estate attorney, to be applied towards the down payment or closing costs at settlement.

Following the earnest money deposit, the home inspection is usually scheduled and completed promptly, typically within the first two weeks of the contract period. Buyers often pay for this inspection, which can cost several hundred dollars, to assess the property’s structural and mechanical integrity. Concurrently, the buyer’s lender initiates the appraisal process to determine the home’s market value, a step that is crucial for loan approval.

The loan underwriting process then commences, where the lender reviews the buyer’s financial documents, including income, assets, and credit history, to finalize loan approval. This review ensures the buyer meets all lending criteria and can repay the mortgage. Simultaneously, a title search ensures the property has a clear title, free of liens or disputes, a prerequisite for title insurance. The buyer also typically conducts a final walkthrough of the property, usually within 24 to 48 hours before closing, to confirm its condition has not changed since the initial offer.

What It Means for Other Buyers

For other prospective buyers, a property being “under contract” generally means it is no longer available for new primary offers. The seller has committed to a specific buyer and is working to fulfill the agreement’s conditions. While the property may still appear in search results, its status indicates that another buyer has a pending claim on the home. This means sellers typically do not entertain new offers unless the current contract encounters an issue.

However, in some situations, a seller might accept backup offers. A backup offer becomes the primary contract if the initial “under contract” deal falls through due to unfulfilled contingencies or other issues. This provides a secondary option for the seller, reducing the time the property spends back on the market. While a backup offer can be submitted, it does not guarantee the purchase, as the original buyer still has the first right to fulfill their contractual obligations.