What Does It Mean When a House Says Under Contract?

When a property is listed as “under contract,” it signifies a key stage in the real estate transaction, distinct from an active listing but not yet a completed sale. Understanding this status clarifies expectations for buyers and sellers. This article explains “under contract” and outlines the typical progression of a real estate deal at this stage.

Understanding “Under Contract”

The “under contract” status means a seller has formally accepted a buyer’s offer, creating a legally binding agreement. While an agreement exists, the property is not yet sold and the transaction has not closed. This differs from an “active” listing, where the property is still available for new offers.

Once under contract, the property is typically removed from active marketing. This period allows both parties to complete due diligence and satisfy agreed-upon terms, which are necessary for the deal to progress.

The Role of Contingencies

Contingencies are specific conditions that must be satisfied for a real estate contract to close. These provisions protect both buyer and seller from unforeseen circumstances. If a contingency is not met, the contract can typically be terminated without penalty, allowing the buyer to recover their earnest money deposit.

A common inspection contingency grants the buyer the right to conduct property inspections. This identifies defects or necessary repairs. Buyers can then negotiate with the seller for repairs, a credit, or a price reduction, or terminate the agreement if issues are too substantial.

The financing contingency makes the sale dependent on the buyer securing a loan. This protects the buyer if their mortgage application is denied or if the property’s appraised value is less than the purchase price. A sale of existing home contingency similarly protects a buyer who needs to sell their current residence to finance the new purchase, allowing them to exit the contract if their home does not sell within a specified timeframe.

Steps During the Contract Period

After an offer is accepted, the “under contract” period involves several steps toward closing. The buyer first submits an earnest money deposit, typically 1% to 3% of the purchase price. Held in escrow, this deposit demonstrates commitment and is usually applied toward the down payment or closing costs.

After the earnest money deposit, the buyer arranges home inspections, typically within 7 to 14 days. These may include general, pest, or radon testing. Based on results, the buyer may negotiate repairs or credits, and inspection contingencies are then waived or satisfied.

The buyer’s lender typically orders an appraisal to determine the property’s market value, ensuring the loan amount is supported. This usually occurs within weeks of contract acceptance. Concurrently, the lender underwrites the loan, reviewing the buyer’s financial history, income, and assets to finalize mortgage approval. This process can take several weeks for documentation verification.

A title search ensures clear property ownership, identifying any liens or disputes. Title insurance is then obtained to protect both buyer and lender from future title issues. Finally, shortly before closing, the buyer conducts a final walkthrough to confirm the home’s condition and completed repairs.

Exploring Backup Offers

Even when a property is under contract, a seller may accept backup offers. A backup offer is a secondary agreement that activates only if the primary contract fails to close. This provides the seller a fallback, reducing the risk of the property returning to the active market.

For the buyer, a backup offer is accepted but contingent on the primary contract’s termination. They are not legally bound to purchase unless the primary contract is officially canceled. This benefits buyers interested in a specific property they initially missed. While a backup offer provides a potential path, the primary contract takes precedence, activating the backup only if the original transaction fails.