What Does It Mean If a House Is Under Contract?

Understanding property statuses is important for both buyers and sellers in the real estate market. The process of buying or selling a home involves several distinct stages. “Under contract” represents a common and significant phase in the journey towards homeownership. This status indicates a property is no longer actively available for new offers, yet the transaction has not concluded. It signifies a crucial point where an agreement has been made, but certain conditions must be satisfied before ownership officially transfers.

Defining “Under Contract”

A house is “under contract” when a buyer and seller formally agree to the terms of a sale and sign a legally binding purchase agreement. This agreement details the property, price, and other essential terms. While not yet sold, this status means the seller has accepted an offer, and both parties are legally committed to proceeding with the sale, subject to certain conditions. The property is typically removed from the active market, signaling to other potential buyers that an agreement is in place.

The term “under contract” is sometimes used interchangeably with “contingent,” referring to specific conditions that must be met for the sale to finalize. This status differs from “pending,” which implies all conditions have been satisfied and the sale is nearing its final closing. When a property is listed as “under contract,” it confirms a formal offer has been accepted, marking a commitment to move forward with the real estate transaction. This phase is a critical period where the agreed-upon terms are put into action before the ownership transfer can occur.

The Contract Period and Key Contingencies

The “under contract” period is a timeframe during which specific actions and conditions, known as contingencies, must be fulfilled to validate the purchase agreement. These contingencies are protective clauses allowing either the buyer or seller to withdraw from the contract without penalty if certain conditions are not met. This period commonly spans several weeks, typically ranging from four to eight weeks, until the sale is complete.

A common contingency is the home inspection, which grants the buyer the right to have the property professionally inspected. This allows the buyer to identify significant issues with the home’s structure or systems. If the inspection reveals major defects, the buyer may negotiate for repairs, a price reduction, or withdraw from the contract if an agreement cannot be reached. Another condition is the appraisal contingency, which protects the buyer if the property’s appraised value is less than the purchase price. Lenders require an appraisal to ensure the loan amount does not exceed the home’s market value; if it comes in low, the buyer may renegotiate or exit the deal.

The financing contingency is a standard provision, making the sale dependent on the buyer securing mortgage loan approval. This clause provides a timeframe for the buyer to obtain a loan commitment from a lender. Should the buyer be unable to secure financing within the specified period, they can typically terminate the contract without losing their earnest money deposit. A title contingency ensures the seller can provide a clear and marketable title to the property, free from any undisclosed liens or legal claims. A title search is conducted to verify ownership and identify any encumbrances that could affect the buyer’s future rights to the property.

Possible Endings for a Contract

Once a home enters the “under contract” phase, there are two main outcomes for the transaction. The most favorable outcome is a successful closing, where all contingencies are met and the sale is finalized. During closing, which typically occurs within 30 to 60 days of the contract being signed, the buyer pays the remaining balance, and the seller transfers the property title. Legal ownership officially transfers from the seller to the buyer, and the keys are exchanged.

Alternatively, a contract can fall through, meaning the sale does not proceed to closing. This often happens due to a contingency not being satisfied. For example, if the home inspection uncovers significant issues the seller is unwilling to address, or if the appraisal value is too low for the buyer’s financing, the buyer may exercise their right to terminate the contract. Financing issues, such as a buyer’s loan falling through, are also frequent causes for contracts to fail. When a contract falls through, the property typically returns to the market, often listed as “active” or “back on market,” and the seller can then entertain new offers.

Making an Offer on an Under-Contract Home

Even when a house is “under contract,” interested buyers can still make an offer, known as a “backup offer.” A backup offer does not immediately override the existing contract but is held in reserve by the seller. If the initial contract fails to close due to unmet contingencies or other issues, the backup offer can then become the primary offer.

Sellers may consider backup offers as a protective measure, particularly if the initial contract includes contingencies that could lead to its termination. Some properties listed as “active under contract” specifically indicate that the seller is still open to receiving backup offers. While submitting a backup offer provides a potential opportunity, it does not guarantee the purchase. The house will only become available to the backup buyer if the primary transaction falls through, and the seller chooses to proceed with the backup offer rather than relisting the property.