What Does It Mean If a Home Is Under Contract?

When a home is listed as “under contract,” it signifies a stage in the real estate process where a buyer and seller have formally agreed to the terms of a sale. This status indicates that a purchase offer has been accepted and a legally binding agreement is in place. Despite this agreement, the sale is not yet finalized, as specific conditions must be met before ownership can transfer.

What “Under Contract” Means

A home listed as “under contract” means a buyer and seller have signed a purchase agreement. This agreement outlines the terms and conditions of the transaction, including the purchase price and financing details. Once signed, both parties are legally bound to proceed.

For the seller, placing a home under contract usually means removing it from active listings, indicating it is off the market. While committed, the seller understands the sale is contingent upon certain requirements being fulfilled. For the buyer, this status means they are moving forward with due diligence, which involves verifying the property’s condition and securing financing. This phase typically lasts several weeks.

Typical Contract Conditions

The “under contract” phase is not a final sale because purchase agreements often include contingencies, which are conditions that must be met for the contract to become fully binding. These clauses act as safeguards, allowing a party to terminate the agreement without penalty if a specified condition is not satisfied. If a contingency is not met or waived, the contract can be terminated, and the buyer’s earnest money deposit is typically refunded.

Financing Contingency

A common condition is the financing contingency, which makes the sale dependent on the buyer securing a mortgage loan. This clause protects the buyer by allowing them to withdraw from the deal and recover their earnest money if they cannot obtain the necessary financing within a specified timeframe. If the buyer’s loan application is denied, or the terms are unacceptable, they can exit the contract.

Home Inspection Contingency

The home inspection contingency grants the buyer a period to have the property professionally inspected for defects. This allows the buyer to identify potential issues with the home’s structure, systems, or components. If problems are discovered, the buyer can negotiate with the seller for repairs, request a price reduction, or, if an agreement is not reached, terminate the contract and receive their earnest money back.

Appraisal Contingency

An appraisal contingency ensures the home’s appraised value meets or exceeds the agreed-upon purchase price. Lenders typically will not loan more than the appraised value. If the appraisal comes in lower than the sales price, this contingency allows the buyer to renegotiate the price with the seller, pay the difference in cash, or terminate the contract without losing their earnest money deposit.

Home Sale Contingency

Sometimes, a buyer’s offer is contingent on the sale of their current home by a specific date. This home sale contingency protects the buyer from carrying two mortgages simultaneously. If the buyer’s existing property does not sell within the agreed-upon timeframe, they can withdraw from the purchase contract. Sellers may include a “kick-out clause,” allowing them to continue marketing the property and accept other offers if the buyer’s home sale is delayed.

Submitting a Backup Offer

Even when a home is “under contract,” it may still be possible for other interested buyers to submit a backup offer. A backup offer is a legally binding contract that becomes the primary agreement if the initial “under contract” deal falls through. This provides a safety net for the seller, ensuring they have another buyer lined up without having to re-list the property.

Sellers may accept backup offers, particularly if the initial contract has contingencies that could lead to its termination. If the primary contract is terminated, the backup offer automatically moves into the first position, and the backup buyer proceeds with the purchase.

Distinguishing From “Pending”

The terms “under contract” and “pending” are often used interchangeably, but they can have subtle differences in real estate. “Under contract” generally means that an offer has been accepted, and the transaction is proceeding, but contingencies are still active. This implies a higher chance the deal could still fall apart if a contingency is not met.

“Pending” typically indicates that all or most contingencies have been satisfied or waived, and the transaction is moving close to closing. At this stage, the property is usually considered effectively off the market, and the likelihood of the sale falling through is significantly reduced. While local Multiple Listing Service (MLS) rules can cause variations, “pending” represents a more advanced stage of the sale process than “under contract.”