What Does It Mean When Your House Is Under Contract?

When a house is “under contract,” a seller has accepted a buyer’s offer, but the transaction is not yet finalized. This status indicates a conditional agreement is in place, meaning the sale is progressing, yet several important steps and conditions must be satisfied before ownership can officially transfer. It establishes a commitment between both parties, moving the property from “for sale” to a path toward a completed sale. This period allows for due diligence and financial arrangements.

Understanding the Agreement

The “under contract” designation means a legally binding document, a purchase and sale agreement, has been executed by both the buyer and seller. This agreement forms the foundation for the transaction, outlining the terms and conditions that govern the sale. Essential components include the agreed-upon purchase price, a legal description of the property, and a proposed closing date.

A significant aspect of this agreement is the earnest money deposit, which the buyer provides as a demonstration of their serious intent. This deposit, commonly 1% to 3% of the purchase price, is held in an escrow account by a neutral third party. It serves as a credit toward the buyer’s down payment and closing costs, but can be forfeited to the seller if the buyer defaults on the contract without a valid reason outlined by a contingency. The purchase agreement also specifies terms, inclusions, or exclusions.

Common Conditions for Contract Fulfillment

Within the purchase agreement, conditions known as contingencies are included to protect both the buyer and seller. A contingency is a specific requirement that must be met for the contract to become fully binding or for the sale to close. These clauses allow a party to withdraw from the contract without penalty if the specified conditions are not satisfied.

One common contingency is the inspection contingency, which grants the buyer the right to conduct professional home inspections. This allows the buyer to assess the property’s condition and negotiate repairs or credits, or withdraw from the contract if significant issues are discovered. Another is the appraisal contingency, which ensures the property’s appraised value is at least equal to the agreed-upon purchase price. This protects the buyer and their lender from overpaying, as lenders will not finance more than a home’s appraised value.

The financing, or loan, contingency is for buyers who require a mortgage, making the sale dependent on their ability to secure loan approval. Should the buyer be unable to obtain financing, this contingency allows them to exit the contract without losing their earnest money. A title contingency is also included to ensure the seller can convey clear ownership of the property, free from liens or legal disputes. This condition safeguards the buyer against future claims on the property.

Navigating the Period Before Closing

Once the purchase agreement is signed and earnest money deposited, the transaction enters a period of due diligence, during which contingencies are addressed. The inspection process typically begins shortly after the contract is accepted, with buyers arranging for a professional home inspection. The inspector examines various aspects of the home, including structural integrity, plumbing, electrical systems, and HVAC, providing a detailed report. Based on the findings, the buyer may request repairs, a price reduction, or decide to terminate the contract.

Concurrently, if financing is involved, the lender initiates the appraisal process to determine the home’s market value. An appraiser visits the property to assess its features and compares it to recent sales of similar homes in the area. If the appraisal comes in lower than the purchase price, the buyer may renegotiate the price with the seller, pay the difference in cash, or withdraw from the sale.

Financing finalization involves the buyer working with their lender through the mortgage underwriting process. This review assesses the buyer’s creditworthiness, income, assets, and employment history, often requiring submission of extensive documentation. Underwriters evaluate the risk of lending, and while a pre-approval is an initial step, final loan commitment occurs after this assessment. Simultaneously, a title company conducts a title search, examining public records to verify ownership and identify any liens, easements, or other claims against the property. Any issues found must be resolved before the title can be transferred clearly.

Final Steps to Property Transfer

As the “under contract” phase progresses, all contingencies must be satisfied or formally waived, transitioning the agreement to a fully binding commitment. With the successful completion of inspections, appraisals, financing approval, and title examination, the path to closing becomes clearer. This leads to scheduling the final walk-through, which occurs before the official closing date.

The final walk-through is the buyer’s opportunity to confirm the property is in the agreed-upon condition, any negotiated repairs have been completed, and no new damage has occurred since their last visit. Buyers should check all appliances, systems, and fixtures, ensuring they are operational and that the property is broom-swept and free of debris. This step addresses any last-minute discrepancies before the legal transfer of ownership.

The culmination of the process is the closing, where all legal documents are signed, and funds are transferred. At closing, the buyer signs mortgage documents, while the seller signs the deed transferring ownership. The buyer also provides the remaining down payment and pays closing costs, which can include loan origination fees, title insurance premiums, and escrow fees. Once all documents are executed and funds disbursed, the deed is recorded with the local authority, officially transferring property ownership to the buyer.