What Does It Mean When a House Is In Contract?

When a house is listed as “in contract,” it signifies that a buyer has submitted an offer, and the seller has formally accepted it. This establishes a legally binding agreement between both parties, but the transaction is not yet complete. The “in contract” status indicates that the sale is progressing through various stages before final ownership transfer.

The Initial Agreement

The foundation of a house being “in contract” is the real estate purchase agreement, a comprehensive legal document signed by both the buyer and seller. This agreement details the agreed-upon purchase price, financing terms, and a precise description of the property. It also identifies all parties involved, including the buyer and seller, and specifies how ownership will be held.

An earnest money deposit, often called a “good faith” deposit, is part of this initial agreement. This deposit, typically 1% to 5% of the purchase price, is held in an escrow account. It demonstrates the buyer’s commitment and is credited towards the down payment or closing costs.

Common Contract Conditions

During the “in contract” phase, several conditions, known as contingencies, must be satisfied before the sale can proceed to completion. A common provision is the home inspection contingency, allowing the buyer to have the property inspected for structural or systemic issues. If significant problems are found, this contingency allows the buyer to renegotiate terms or withdraw from the contract without penalty.

Another frequent condition is the financing contingency, granting the buyer a timeframe to secure a mortgage loan. This protects the buyer’s earnest money if financing cannot be obtained. Lenders require an appraisal contingency, ensuring the property’s value meets the loan amount. If the appraisal is lower than the agreed-upon price, this allows for renegotiation or contract termination.

Moving Towards Final Sale

Once all contract conditions have been met and waived, the transaction moves into the final procedural steps before closing. This involves a title search and securing title insurance. The title search investigates the property’s history to ensure clear ownership and identify any potential liens, encumbrances, or disputes.

Title insurance protects the buyer and lender against financial loss from undiscovered title defects, such as errors in public records or undisclosed heirs. This premium, paid at closing, covers legal fees and losses if a title issue arises. Just before closing, the buyer conducts a final walkthrough of the property. This allows the buyer to confirm the home is in the agreed-upon condition, any negotiated repairs are complete, and all seller belongings are removed.

Closing culminates with the signing of legal documents, including the deed and mortgage agreements, and the transfer of funds. Buyers are responsible for closing costs, which are fees associated with originating the mortgage and transferring ownership, typically 2% to 5% of the purchase price. These costs cover services such as lender fees, title services, and recording fees. Upon completion, ownership is transferred, and the buyer receives the keys to their new home.