What Does It Mean for a Home to Be Under Contract?

When a home is listed as “under contract,” it signifies an important stage in the real estate transaction. This status indicates that a seller has accepted an offer from a buyer, and both parties have formally committed to the sale through a signed purchase agreement.

Understanding the “Under Contract” Status

The “under contract” status means a legally binding agreement is in place between a buyer and a seller for a specific property. This agreement signifies an accepted offer, with both parties intending to proceed subject to certain conditions. The property is no longer actively marketed for new offers, though it is not yet officially sold or closed.

This stage is distinct from a property being “pending,” which typically implies that all contractual conditions, or contingencies, have been satisfied, and the sale is very close to completion. While “under contract” indicates a formal agreement, it also means there are usually specific conditions that must be fulfilled before the sale can be finalized. Until these conditions are met, the deal is not guaranteed to close.

Key Contractual Elements and Conditions

A home purchase contract, once “under contract,” typically includes several conditions known as contingencies that must be met for the sale to proceed. These clauses protect both the buyer and, in some cases, the seller, by allowing parties to withdraw from the agreement without penalty if specified conditions are not satisfied.

Common Contingencies

Financing Contingency: Makes the buyer’s commitment dependent on their ability to secure a mortgage loan within a specified timeframe. If financing cannot be obtained, the buyer can terminate the contract and typically receive their earnest money deposit back.
Inspection Contingency: Grants the buyer the right to have the property professionally inspected for defects. The buyer can request repairs, credits, or terminate the deal if significant issues are discovered.
Appraisal Contingency: A standard protective clause, particularly when a buyer is obtaining a mortgage. It stipulates that the property must appraise for at least the agreed-upon purchase price. If the appraisal comes in lower, the buyer can renegotiate the price, cover the difference, or withdraw from the contract without losing their earnest money.
Title Contingency: Ensures that the seller can convey clear ownership of the property, free from undisclosed liens or disputes. Any issues identified in a title report must be resolved before closing, or the buyer may terminate the agreement.
Home Sale Contingency: Included if the buyer needs to sell their existing home to fund the new purchase. This provides an exit strategy if the buyer’s current property does not sell within the contract’s specified period.

The Period Between Contract and Closing

Once a home is under contract, a series of procedural actions unfold as both parties work to satisfy the agreed-upon contingencies and move toward closing. The earnest money deposit, typically 1% to 5% of the sale price, is placed in an escrow account, demonstrating the buyer’s serious intent. This deposit is often refundable if a contingency is not met, but it can be forfeited if the buyer defaults without a valid reason.

Key Steps Before Closing

Home Inspection: An early step, often occurring within a few days or weeks of the contract being signed. The buyer arranges for a licensed inspector to examine the property’s condition, including its structural components, systems like HVAC, plumbing, and electrical. If issues are found, the buyer may negotiate with the seller for repairs, a price reduction, or a credit at closing.
Appraisal: For buyers securing a mortgage, the appraisal process is initiated by the lender. An independent appraiser evaluates the property to determine its fair market value, ensuring it supports the loan amount. This protects the lender from over-lending and the buyer from overpaying.
Loan Underwriting: The loan underwriting process begins, where the lender verifies the buyer’s financial information, including income, assets, credit history, and employment. Underwriters assess the borrower’s ability to repay the loan and confirm the property’s value. This review culminates in final loan approval or denial.
Title Search and Insurance: A title search is conducted by a title company to uncover any liens or claims against the property’s title, ensuring clear ownership transfer. Title insurance is then typically purchased to protect against future claims or undiscovered defects.

As contingencies are satisfied, they are formally removed, signaling the progression toward the final closing where ownership is transferred and funds are exchanged.

Implications for Other Prospective Buyers

When a home is under contract, it means an offer has been accepted, but the sale is not yet final. This allows for “backup offers,” which sellers may still entertain.

A backup offer is a legally binding contract that positions a second buyer to purchase the home if the initial deal falls through. Sellers might accept backup offers, especially if the primary contract has contingencies that introduce uncertainty, like a home sale or complex financing. If the primary buyer fails to meet their obligations, or issues arise during inspections or appraisals that cannot be resolved, the initial contract may be terminated. In such cases, the backup offer can automatically move into the primary position, saving the seller from relisting the property. Pursuing a backup offer can be a strategic move to secure a desired property, even if it initially appears unavailable.