What Does Under Contract in Real Estate Mean?

In real estate, “under contract” indicates a significant step in the home-buying process. This status means a formal agreement has been reached between a buyer and a seller. Understanding this term is important for anyone involved in buying or selling a home, as it outlines the path toward a completed sale and the conditions that must be fulfilled before property ownership transfers.

Defining “Under Contract”

When a home is listed as “under contract,” the seller has accepted an offer from a buyer, and both parties have signed a legally binding purchase agreement. This agreement details the buyer, seller, property, price, and costs. While the contract is signed, the sale is not yet finalized. The property is reserved for the buyer, pending specific conditions outlined in the contract. These conditions, known as contingencies, must be satisfied before the transaction can proceed to closing.

The Role of Contingencies

Contingencies are conditions that must be met for a real estate contract to become binding and for the sale to proceed. These clauses allow either the buyer or seller to withdraw from the contract without penalty if specified conditions are not met within a set timeframe. Buyers include contingencies in their offers to protect their earnest money deposit. If a contingency is not satisfied, the buyer can terminate the agreement and receive their deposit back.

Common contingencies include:

• Financing contingency: Allows the buyer to withdraw if they cannot secure mortgage loan approval within a specified period. This protects the buyer from being obligated to purchase a home they cannot afford.
• Inspection contingency: Grants the buyer the right to have the property professionally inspected. If the inspection reveals issues, the buyer can request repairs, renegotiate the price, or terminate the contract.
• Appraisal contingency: Ensures the property’s appraised value meets or exceeds the purchase price. If the appraisal is low, the buyer can renegotiate the price with the seller or withdraw from the agreement.
• Title contingency: Requires the seller to provide a clear title, free from liens or disputes. If issues are found, the buyer can demand resolution or exit the contract.

Buyer and Seller Considerations

During the “under contract” period, both buyers and sellers have responsibilities to ensure the transaction progresses smoothly. Buyers conduct due diligence, which involves arranging inspections, securing loan approval, and reviewing title documents. This due diligence period typically ranges from 30 to 90 days, allowing ample time for these investigations.

Sellers cooperate with buyer requests for inspections and appraisals. They provide necessary disclosures about the property’s condition. While under contract, sellers may entertain backup offers, especially if the initial agreement includes contingencies that could lead to its termination. The entire process, from accepted offer to closing, commonly takes between 30 to 90 days, with 30 to 45 days being a typical timeframe for transactions involving mortgages.

Understanding Different Listing Statuses

The real estate market uses several listing statuses to indicate a property’s availability and transaction stage. An “active” listing means the property is available for sale and has not yet received an offer.

Once an offer is accepted, the status changes to “under contract.” This signifies a signed agreement exists, but the sale is contingent upon conditions being met. The term “contingent” is often used interchangeably with “under contract,” highlighting that the sale depends on these conditions. In some instances, a property might be listed as “active with contract” or “contingent (continue to show),” indicating that while an offer is accepted, the seller is still marketing the home and may consider backup offers.

A “pending” status means all contingencies have been satisfied or waived, and the transaction is progressing toward closing. Understanding these distinctions helps potential buyers gauge their chances of acquiring a property and informs sellers about their options during different phases of the sale.