What Does It Mean When a House Is Under Contract?

When a house is listed as “under contract,” it signals a significant milestone in the real estate journey. This status indicates that a buyer has submitted an offer on the property, and the seller has officially accepted it. For both parties, understanding this phase is important, as it moves the transaction beyond preliminary interest toward a potential final sale.

Understanding Under Contract Status

“Under contract” means a legally binding agreement exists between a buyer and a seller for the purchase of a home. While an offer has been accepted and a purchase agreement signed, the sale is not yet finalized. This stage differs from a home being “sold” or “pending,” as there are conditions, known as contingencies, that still need to be satisfied before the transaction can close. A property listed as under contract is not actively marketed to other potential buyers, although some sellers may choose to accept backup offers in case the initial contract falls through.

Key Conditions for Contract Fulfillment

For a house under contract to move toward a successful closing, several conditions, or contingencies, must be fulfilled. These clauses protect both the buyer and the seller by allowing them to withdraw from the agreement without penalty if certain criteria are not met. Contingencies are common in real estate contracts, ensuring unforeseen issues can be addressed before the sale is finalized.

A common condition is the financing contingency, which allows the buyer to back out if they cannot secure the necessary mortgage loan within a specified timeframe, often 30 to 60 days. This protects the buyer’s earnest money deposit if their loan application is denied. The appraisal contingency permits the buyer to renegotiate or withdraw if the home’s appraised value is less than the agreed-upon purchase price, safeguarding them from overpaying.

The inspection contingency grants the buyer a period, 7 to 14 days, to have the home professionally inspected for any defects. If significant issues are discovered, the buyer can negotiate for repairs, a price reduction, or even terminate the contract. A title contingency ensures the seller has clear legal ownership of the property, free from liens or disputes. A title search is conducted to confirm this, protecting the buyer from inheriting legal encumbrances.

Steps After Going Under Contract

Once a house is under contract, a series of procedural steps unfold to address the contingencies and prepare for closing. The process begins with the buyer depositing earnest money into an escrow account, held by a neutral third party, demonstrating their serious intent to purchase. This deposit acts as a safeguard, protecting both parties and ensuring funds are only released when conditions are met.

During this period, the buyer works to satisfy the contingencies:

• Scheduling the home inspection, often within 7-10 days of contract acceptance, to identify any property issues.
• Applying for a mortgage, leading to the lender ordering an appraisal to confirm the property’s value.
• Conducting a title search to verify clear ownership and identify any claims against the property.
• Negotiating with the seller if inspection or appraisal issues arise, such as agreeing on repairs or a price adjustment.
• Conducting a final walkthrough of the property as the closing date approaches, 30 to 60 days from contract acceptance, to ensure it is in the expected condition and any agreed-upon repairs have been completed.

Outcomes of an Under Contract Home

After navigating the period during which a home is under contract, there are two primary outcomes for the transaction. The most common result is a successful closing, where all conditions are met, and ownership is officially transferred. The closing involves signing numerous legal documents, including the mortgage and deed, and the exchange of funds. This final step legally transfers the property from the seller to the buyer, concluding the home-buying process.

Alternatively, a contract can terminate before closing, meaning the sale does not go through. This occurs if one or more contingencies, such as financing, inspection, or appraisal, are not satisfied within the stipulated timeframe. If a contract falls through due to a contingency not being met, the buyer has the right to reclaim their earnest money deposit. In such cases, the property returns to the market, allowing the seller to seek new offers. Approximately 7% of real estate contracts are terminated, with inspection, financing, and appraisal issues being common reasons.