What Does It Mean When a House Is Under Contract?

When a house is described as “under contract,” it signifies a significant stage in the real estate transaction process. This means a buyer has submitted an offer, and the seller has formally accepted it, creating a legally binding agreement. While this marks a major step towards a sale, the transaction is not yet finalized. The “under contract” status indicates that certain conditions, known as contingencies, still need to be met before ownership can transfer. This period is an intermediate phase where both parties work to satisfy the terms outlined in their agreement.

The Contractual Agreement

The foundation of an “under contract” status is the real estate purchase agreement, a formal document signed by both the buyer and seller. This agreement outlines the terms and conditions of the property sale, making it legally enforceable. Key elements typically included are the agreed-upon purchase price, a detailed description of the property, and the proposed closing date.

The agreement also specifies the earnest money deposit, a sum the buyer provides to demonstrate serious intent. This deposit usually ranges from 1% to 3% of the purchase price, though it can be higher in competitive markets. While binding, the contract generally includes provisions allowing either party to terminate the agreement if certain conditions are not met.

Key Contingencies

Real estate contracts commonly include contingencies, which are conditions that must be fulfilled for the sale to proceed. The financing contingency allows the buyer to exit the contract without penalty if they are unable to secure a mortgage loan within a specified timeframe. This protects the buyer from being obligated to purchase a home they cannot finance.

The appraisal contingency ensures the property’s value, as determined by a professional appraisal, meets or exceeds the purchase price. If the appraisal comes in low, this contingency allows the buyer to renegotiate the price or withdraw from the deal while retaining their earnest money.

Buyers also include an inspection contingency, granting them the right to have the home professionally inspected for defects. Should significant issues be discovered, the buyer can negotiate repairs, request a price reduction, or cancel the contract. A sale of prior home contingency may also be included, making the purchase dependent on the buyer successfully selling their current residence.

Buyer and Seller Activities

During the “under contract” phase, both buyer and seller engage in specific actions to fulfill the contract’s terms and contingencies. Buyers arrange for inspections, such as a general home inspection. Concurrently, buyers work with their lender to finalize mortgage approval and schedule the appraisal. If inspections reveal issues, the buyer may negotiate with the seller for repairs or credits.

On the seller’s side, responsibilities include providing access to the home for inspections and the appraisal. They must also respond to any repair requests stemming from the inspection and ensure all agreed-upon disclosures about the property’s condition are provided to the buyer. The seller works to ensure clear title to the property, addressing any potential liens or claims, and begins preparations for moving out of the home. These coordinated efforts are essential to navigate the contractual period successfully.

The Journey to Closing

Once all contingencies have been satisfied or waived, the transaction moves into its final stages, leading to the closing. A key step is the final loan approval, where the lender commits to funding the mortgage. Simultaneously, a title search is conducted to verify legal ownership of the property and identify any liens or encumbrances, followed by the issuance of title insurance to protect both the buyer and the lender.

Shortly before closing, the buyer conducts a final walkthrough of the property to ensure it is in the agreed-upon condition and that any negotiated repairs have been completed. On closing day, both parties meet to sign legal documents, including the deed transferring ownership, the mortgage, and the closing disclosure outlining all financial details. Funds are transferred, keys are exchanged, and the deed is recorded with the local county recorder’s office, completing the sale.