What Does It Mean When a House Says Under Contract?

When a home listing displays “under contract,” it signals an often misunderstood phase in the real estate journey. This status indicates a significant step has been taken towards a sale, but it is far from a finalized transaction. Understanding what “under contract” truly means can provide clarity and even reveal opportunities for interested buyers. This phase involves various activities and conditions that determine if a property will ultimately change hands.

What “Under Contract” Signifies

“Under contract” signifies a buyer’s offer has been accepted by the seller, resulting in a signed purchase agreement. This agreement creates a legally binding commitment between both parties, outlining sale terms like the purchase price and estimated closing date. However, the deal is not complete; it is contingent upon specific conditions being met before ownership can officially transfer.

This status differs from an “active” listing, where a property is still available for offers. It also varies from “pending,” which generally indicates that all, or nearly all, contingencies have been met, and the sale is very close to closing. While “under contract” is a strong indicator of an impending sale, it is not a guarantee. The property may return to the market if these conditions are not satisfied.

Key Activities During the “Under Contract” Period

Once a property is under contract, activities begin to move the transaction toward closing. One initial step for the buyer is arranging a home inspection, performed by a professional within 7 to 10 days. This inspection evaluates the home’s structural integrity, major systems like plumbing and electrical, and overall condition. An inspection costs between $250 and $400, varying by the property’s size and complexity.

Concurrently, if the buyer is securing a mortgage, their lender will order an appraisal. An appraiser assesses the home’s market value to ensure it supports the loan amount, protecting the lender’s investment. This process, which can take several days to a few weeks, involves a fee paid by the buyer, ranging from $300 to $600. The buyer’s financial institution also begins the loan underwriting process, reviewing financial history, creditworthiness, and property value for final loan approval.

Another activity is the title search, conducted by a title company or attorney. This search examines public records to verify legal ownership and identify any liens, encumbrances, or disputes that could affect the transfer of clear title. A title search can take 10 to 14 days on average and is essential to ensure the buyer receives clear ownership. These efforts aim to uncover potential issues before the final transfer of funds and ownership.

Understanding Contingencies

Contingencies are conditions in a real estate contract that must be satisfied for the agreement to proceed to closing. These clauses provide a party the right to withdraw from the contract without financial penalty if conditions are not met within an agreed timeframe. Both buyers and sellers agree to these conditions, which act as safeguards during the transaction.

A common type is the financing contingency, which allows the buyer to cancel the deal and reclaim earnest money if they cannot secure a mortgage loan. This clause specifies a period, 30 to 60 days, for the buyer to obtain loan approval. The inspection contingency gives the buyer the right to have the home professionally inspected and, based on findings, negotiate repairs, request a price reduction, or terminate the contract if major issues are discovered. Buyers have 7 to 10 days after offer acceptance for this review.

The appraisal contingency protects the buyer if the property’s appraised value comes in below the agreed-upon purchase price. If this occurs, the buyer can renegotiate the price with the seller, cover the difference in cash, or withdraw from the contract. Another condition is the sale-of-existing-home contingency, which allows a buyer to make their offer dependent on successfully selling their current home within a set period. This protects buyers from carrying two mortgages but can make an offer less attractive to sellers.

Potential Outcomes After “Under Contract”

After a property enters the “under contract” phase, two outcomes are possible: a successful closing or the termination of the agreement. A successful closing occurs when all contractual contingencies have been met, financing is secured, and both buyer and seller fulfill their obligations. At this point, the final documents are signed, funds are transferred, and legal ownership of the property officially changes hands, marking the completion of the sale.

However, a contract can also fall through, returning the property to the market. Common reasons for termination include unmet contingencies, such as issues discovered during the home inspection that cannot be resolved, a low appraisal that impacts financing, or the buyer’s inability to secure loan approval. If a contract is terminated due to an unmet contingency, the buyer receives their earnest money deposit back.

When a contract falls through, the property reverts to an “active” status, making it available for new offers. In some cases, sellers may accept “backup offers” while the property is under contract. A backup offer is a secondary, legally binding agreement that automatically moves into primary position if the initial contract terminates. This strategy provides a safety net for the seller and an opportunity for other interested buyers to acquire a desired property.