What Does It Mean When a Home Is Under Contract?

Homeownership involves distinct stages. Understanding these phases is important for buyers and sellers. When a home is “under contract,” it marks a key moment, indicating a formal agreement has been reached, though the transaction is still in progress.

Understanding “Under Contract” Status

When a home is listed as “under contract,” it means a buyer has submitted an offer, and the seller has formally accepted it, creating a legally binding agreement. Despite this, the sale is not yet complete, as various conditions must be satisfied before ownership changes. This status differs from “active,” where a property is available for offers, or “sold,” which means the transaction has finalized. A home “under contract” is off the market, but not yet closed.

Key Conditions and Elements

A home being “under contract” is typically contingent upon several conditions that protect both the buyer and the seller. One common protection is the financing contingency, which allows the buyer to withdraw from the agreement without penalty if they are unable to secure a mortgage loan within a specified timeframe. Another frequent condition is the home inspection contingency, granting the buyer the right to have the property professionally inspected for defects. If significant issues are discovered, this contingency permits renegotiation of terms or even termination of the contract.

An appraisal contingency is also a standard element, ensuring that the property’s appraised value meets or exceeds the agreed-upon purchase price. Lenders generally will not finance more than the appraised value, protecting the buyer from overpaying. A title contingency provides the buyer with assurance that the seller holds clear legal ownership of the property, free from undisclosed liens or claims. To demonstrate serious intent, buyers typically provide an earnest money deposit, often ranging from 1% to 3% of the purchase price, held in an escrow account. This deposit serves as a good-faith gesture and is usually applied toward the down payment or closing costs if the sale proceeds, or potentially forfeited if the buyer defaults on the contract without valid reason.

The Process During the Contract Period

Once a home is officially under contract, the buyer begins a period of due diligence to satisfy the agreed-upon contingencies. This often starts with scheduling a professional home inspection, which typically occurs within 5 to 15 business days of signing the contract. The inspection itself usually takes a few hours, with the report often ready within a day or two. Following the inspection, buyers may negotiate with the seller for repairs or credits if issues are found, and the seller typically has about three days to respond to these requests.

Concurrently, the buyer’s mortgage lender initiates the appraisal process to determine the property’s market value. The appraisal is typically ordered within a few days of the contract being signed and can take anywhere from six to 20 days to complete, depending on market conditions and property complexity. Throughout this period, the buyer works with their lender to finalize loan approval, a process known as underwriting, which involves verifying income, assets, and credit history. Mortgage underwriting generally takes between 30 to 45 days, though it can sometimes be completed in as little as a few days or extend longer depending on the loan and lender.

Sellers also have responsibilities during this phase, including providing all required property disclosures to the buyer and ensuring access to the home for inspections and the appraisal. A title company or attorney conducts a title search to confirm the property’s legal history and prepare for the transfer of ownership. This comprehensive process, from contract to closing, often spans 30 to 60 days for buyers obtaining a mortgage.

Potential Outcomes of the Contract Period

The “under contract” phase can conclude in several ways, with the most favorable outcome being a successful closing. This occurs when all contingencies, such as financing approval, a satisfactory home inspection, and a confirmed appraisal, are met within the stipulated timelines. Upon meeting these conditions, the transaction proceeds to closing, where ownership is formally transferred, and funds are exchanged.

However, contracts can also be terminated if contingencies are not satisfied. For example, if the home appraisal comes in significantly lower than the agreed-upon price and the parties cannot renegotiate, the buyer may have the right to withdraw from the purchase. Similarly, if the buyer’s loan application is denied, or if unresolved issues arise from the home inspection, the contract may be dissolved according to its terms. In such instances, the earnest money deposit is typically returned to the buyer, provided the termination aligns with the contract’s protective clauses.

For sellers, it is common to consider “backup offers” even when a home is under contract. A backup offer is a secondary agreement that becomes active if the initial contract falls through. This arrangement provides a safety net for the seller, allowing them to transition quickly to another buyer without relisting the property entirely if the primary transaction does not finalize.