What Does It Mean When a House Is Under Contract?

When a residential property is listed as “under contract,” it signifies a phase in the real estate transaction where a buyer and seller have reached an agreement on the terms of sale. This means a formal offer has been accepted, and a legally binding purchase agreement has been executed. While this marks progress, the sale is not yet finalized, as various conditions must be satisfied before ownership can officially transfer.

Understanding “Under Contract” Status

A property being “under contract” means a legally binding purchase agreement has been signed by both the buyer and the seller. This agreement outlines the agreed-upon price, terms, and conditions for the home’s sale. The transaction is not yet complete and remains contingent upon specific conditions being met.

Once a home enters this status, it is typically removed from active listings, signaling to other potential buyers that an offer has been accepted. However, “under contract” does not mean the property is “sold”; it indicates a preliminary agreement is in place. Some sellers may still accept backup offers during this period, especially if the current contract has contingencies or is labeled “active under contract.” A backup offer provides a safety net for the seller if the primary deal falls through.

Key Conditions During the Contract Period

Real estate contracts commonly include specific conditions, known as contingencies, that must be satisfied for the sale to proceed. These clauses protect both the buyer and seller by allowing a party to withdraw from the agreement without penalty if certain terms are not met.

Financing Contingency

A common condition is the financing contingency, which makes the purchase dependent on the buyer securing a mortgage loan. This protects the buyer by allowing them to withdraw if they are unable to obtain the necessary financing within a specified timeframe. Lenders typically require an appraisal to ensure the property’s value supports the loan amount, leading to an appraisal contingency. If the appraisal value comes in below the agreed-upon purchase price, the buyer may renegotiate the price or terminate the contract.

Inspection Contingency

Another frequent condition is the inspection contingency, which grants the buyer the right to have the property professionally inspected for defects. This usually occurs within a short period, such as 7 to 10 days after the offer is accepted. If the inspection uncovers significant issues, the buyer can request repairs, negotiate a price reduction, or cancel the contract.

Sale of Buyer’s Home Contingency

In some instances, a contract may include a sale of buyer’s home contingency, meaning the purchase is dependent on the buyer successfully selling their current residence. This protects buyers who rely on the proceeds from their existing home sale to finance the new purchase. If the buyer’s home does not sell within the contractually defined period, they typically have the right to terminate the agreement.

The Contract Period Process

During the “under contract” period, various actions are undertaken by all parties to fulfill the agreed-upon conditions. Buyers typically schedule and conduct property inspections, which may include general home, pest, or radon assessments. These inspections usually occur within the first few weeks, allowing time for review and potential negotiations. Buyers also submit their loan applications and required financial documentation to their lender.

Lenders process the loan application, order an independent appraisal, and perform underwriting to assess the buyer’s financial qualifications. This review ensures the buyer meets lending guidelines and that the property’s value aligns with the loan amount. Sellers must provide access for inspections and the appraisal, and they respond to any repair requests from inspection findings. They also prepare for moving out.

Real estate agents for both the buyer and seller facilitate communication, manage timelines, and coordinate appointments throughout this phase. They help negotiate any adjustments to the contract based on inspection or appraisal results. The typical duration for this process, from an accepted offer to closing, often ranges from 30 to 60 days, depending on financing and transaction complexity.

Possible Outcomes

The “under contract” phase can lead to several outcomes, with the most common being a successful closing. This occurs when all contingencies are met, all conditions are satisfied, and both the buyer and seller fulfill their contractual obligations. At closing, ownership of the property transfers from the seller to the buyer, and all financial transactions, including the down payment and closing costs, are finalized.

However, a contract can also be terminated if one or more contingencies are not met or if a party breaches the agreement. For example, if the buyer’s financing falls through, the home inspection reveals issues, or the appraisal comes in too low without a renegotiated price, the contract may be canceled. In such cases, the earnest money deposit—a sum provided by the buyer to demonstrate commitment—is typically returned to the buyer if termination is due to an unmet contingency. If the buyer backs out for reasons not covered by the contract’s contingencies, they may risk forfeiting this deposit to the seller.

Should a contract be terminated, the property usually returns to an ‘active’ status, making it available for other prospective buyers. If a seller accepted backup offers while the property was ‘under contract,’ a legally binding backup offer can then move into the primary position if the initial contract falls through. This allows the sale to proceed with the backup buyer without fully relisting the property.