Financial Planning and Analysis

What Does “In Contract” Mean in Real Estate?

Demystify "in contract" in real estate. Understand this pivotal stage in property sales, its implications, and what comes next for all parties.

What Does “In Contract” Mean in Real Estate?

When a property is “in contract” in real estate, it means a buyer and seller have formally agreed to the terms of a sale. This status indicates a purchase agreement has been signed by both parties, establishing a legally binding commitment. However, the sale is not yet finalized, as various conditions and processes must be completed before ownership officially transfers.

Steps Following an In-Contract Status

Once a property is “in contract,” a series of procedural steps and conditions, known as contingencies, begin. These contingencies act as safeguards for both the buyer and seller, ensuring certain requirements are met before the transaction can close. A common contingency is the financing contingency, which allows the buyer a specified period to secure a mortgage loan for the property. During this time, the buyer’s lender will conduct an appraisal to ensure the property’s value supports the loan amount. If the appraisal comes in lower than the agreed-upon purchase price, the buyer may renegotiate the price, pay the difference in cash, or withdraw from the contract.

Another frequent contingency is the home inspection contingency, which grants the buyer a window to have the property professionally inspected for any defects or issues. Should the inspection reveal significant problems, the buyer can request repairs, negotiate a price reduction, or terminate the contract without penalty. A clear title contingency is also common, requiring a thorough title search to confirm legal ownership and ensure there are no undisclosed liens or claims against the property. The title company works to resolve any identified issues to provide a clear title for transfer. This period, referred to as the due diligence period, allows the buyer to investigate the property comprehensively before the sale becomes fully binding.

Other Common Property Statuses

Understanding “in contract” is clearer when contrasted with other common real estate statuses, each representing a different stage in the sales process. An “active” listing means the property is currently available for sale, and the seller is seeking and reviewing offers from potential buyers.

A property listed as “under offer” indicates a buyer has submitted a proposal, but the seller has not yet formally accepted it. This status precedes “in contract,” signifying ongoing negotiations rather than a mutual agreement. In some cases, a property might be listed as “active under contract,” meaning the seller has accepted an offer but is still open to receiving backup offers, often due to existing contingencies.

The “pending” status means all contingencies have been met or waived, and the sale is nearing its final stages, with the closing process underway. While “pending” and “in contract” are sometimes used interchangeably, “pending” implies a higher certainty of closing compared to “in contract,” where contingencies are still being addressed. Finally, a “sold” property indicates the transaction is complete, ownership has been legally transferred, and the new owner has taken possession.

Options for Interested Buyers

If a property an interested buyer desires is already “in contract,” there might still be an opportunity to acquire it through a “backup offer.” A backup offer is a legally binding contract submitted by a second buyer, which automatically moves into first position if the initial contract falls through. This strategy can be useful in competitive housing markets.

The primary contract might fail for various reasons, such as the buyer being unable to secure financing, the home inspection revealing significant issues, or the appraisal coming in too low. Submitting a backup offer positions the interested buyer to be next in line without having to re-enter a competitive bidding process if the first deal collapses. However, making a backup offer carries considerations, as it can involve an uncertain waiting period and may require the buyer to continue their property search in parallel. While it provides a safety net, there is no guarantee the primary contract will fail, or that the backup offer will be accepted.

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