What Does It Mean When a House Is Under Contract?

When a home is listed as “under contract,” it signifies a milestone in the real estate journey. This status indicates that a seller has formally accepted an offer from a buyer, marking the transition from an active listing to a pending sale. While an agreement has been reached on terms, the transaction is not yet complete. This phase requires both parties to fulfill specific conditions before ownership of the property transfers.

Defining Under Contract

The term “under contract” means a legally binding agreement between a buyer and a seller for a property. This agreement outlines the agreed-upon price and other terms, but the sale remains contingent upon certain conditions. During this phase, the property is removed from active marketing or marked “pending.” This prevents other buyers from making primary offers, though backup offers are sometimes considered.

Being under contract involves “contingencies,” which are conditions that must be satisfied for the contract to proceed to closing. These conditions protect both parties, allowing either to withdraw without penalty if a specified condition is not met. Common contingencies include financing, the home’s condition, and its appraised value.

The Buyer’s Process During Contract Period

Upon entering the “under contract” phase, the buyer undertakes several due diligence steps. A primary responsibility is securing formal financing approval, which involves a loan application and underwriting review by the lender. Lenders require an appraisal of the property to ensure its value supports the loan amount, protecting their investment. The buyer pays for this appraisal.

Buyers also arrange for professional home inspections to assess the property’s condition. These include general home inspections and specialized checks for pests or environmental factors. Should inspections reveal significant issues, the buyer may negotiate with the seller for repairs or a credit, or withdraw from the contract if issues are not resolved. The buyer places an earnest money deposit into an escrow account, which is later applied to the down payment or closing costs.

The Seller’s Role During Contract Period

During the contract period, the seller has responsibilities. A primary duty is to provide all required property disclosures, detailing known material defects or issues with the home. These disclosures can cover structural damage, mold, or lead-based paint.

The seller must also cooperate with the buyer’s requests for inspections and appraisals, granting access to the property. If inspections uncover issues, the seller may negotiate with the buyer regarding potential repairs or financial concessions. Sellers also begin preparing the property for the buyer’s final walk-through, ensuring the home is maintained in the agreed-upon condition.

Making a Backup Offer

Even when a house is under contract, buyers may still have an opportunity through a “backup offer.” A backup offer is a legally binding contract that becomes effective if the initial contract fails. This option is relevant if the primary offer has unmet contingencies, as these could lead to the first deal falling through.

If accepted by the seller, a backup offer places the buyer next in line to purchase the home, requiring an earnest money deposit. While about 7% of contracts are terminated, making a backup offer can be a strategic move. It provides a pathway to acquiring a desired property if unforeseen circumstances prevent the initial transaction from closing.

Reaching the Closing Stage

Once all contingencies have been satisfied or waived, the transaction moves into its final phase: the closing. This stage begins with a final walk-through of the property by the buyer, within 24 to 48 hours before the closing date. The walk-through confirms the property remains in the expected condition and any agreed-upon repairs have been completed.

At the closing appointment, which takes place at a title company or attorney’s office, both the buyer and seller sign many legal and financial documents. Key documents include the deed, the mortgage agreement, and the Closing Disclosure. Funds are then transferred, including the buyer’s down payment and closing costs, which range from 2% to 5% of the home’s purchase price. Upon completion of all paperwork and fund transfers, the buyer receives the keys, and ownership is conveyed.