What Does Under Contract Mean for a House?

The real estate market uses various terms to describe a property’s status. Understanding what “under contract” means is crucial for buyers and sellers, as different terms are often used interchangeably, leading to confusion.

Meaning of Under Contract

When a house is listed as “under contract,” it means a buyer and seller have signed a legally binding purchase agreement. This indicates an accepted offer and commitment from both parties. While the property is no longer actively marketed, the sale is not yet finalized. This status marks an initial stage where certain conditions, known as contingencies, must be met before ownership formally transfers.

The agreement outlines the purchase price, financing details, and any additional conditions agreed upon by both parties. This status is distinct from a completed sale, as various hurdles typically remain before the keys can be exchanged.

Navigating the Contract Period

The period after a property goes “under contract” involves fulfilling agreed-upon conditions or contingencies. These clauses protect both parties, allowing withdrawal without penalty if criteria are not met. This phase typically lasts between 30 and 60 days.

A common contingency is the home inspection, which grants the buyer a specified timeframe, often around 7 to 10 days, to have the property professionally inspected. If the inspection reveals significant issues, the buyer can negotiate repairs, a price adjustment, or even withdraw from the contract.

Another important condition is the appraisal contingency, ensuring the home’s value, as determined by an independent appraiser, supports the loan amount. If the appraisal comes in lower than the agreed-upon price, the buyer may renegotiate, pay the difference, or cancel the deal.

Financing contingencies are also standard, allowing the buyer a period, typically 30 to 60 days, to secure mortgage approval. If the buyer cannot obtain the necessary loan within this timeframe, they can typically terminate the contract and retain their earnest money deposit.

Finally, a title contingency ensures that the seller can transfer clear legal ownership of the property, free from undisclosed liens or disputes. A title company conducts a thorough search to confirm the seller’s right to sell and identify any potential issues that must be resolved prior to closing.

Submitting a Backup Offer

Even when a home is “under contract,” another interested buyer can submit a backup offer. A backup offer is a legally binding contract that positions a second buyer to purchase the home if the primary contract falls through. This scenario is particularly relevant for properties listed as “active under contract,” indicating the seller has accepted an offer but is still open to additional bids.

Making a backup offer can be a strategic move, especially in competitive markets, as it places a buyer next in line without needing to re-enter a bidding war if the initial deal fails. If the primary contract terminates due to unfulfilled contingencies, such as issues with inspection or financing, the backup offer can then become the primary agreement. While a backup offer provides a potential path to acquiring a desired property, buyers should be aware that it is a contractual commitment and should continue their property search, as the primary offer may still proceed to closing.

Understanding Related Statuses

The real estate market uses several terms to describe a property’s availability, and understanding their distinctions from “under contract” is helpful. An “active” listing means the property is fully available for showings and offers, with no accepted agreement in place. This is the initial status for most homes entering the market.

The term “contingent” is often used interchangeably with “under contract,” but can sometimes imply more specific conditions that need to be met, such as the buyer selling their current home. While both indicate a conditional agreement, “contingent” might signal that a unique, buyer-driven condition is in play.

A “pending” status typically means all contingencies have been met or waived, and the sale is very close to finalizing. At this stage, the property is usually off the market, and the likelihood of the deal falling through is significantly lower compared to an “under contract” status. Finally, “sold” signifies that the transaction is complete, ownership has officially transferred, and the property is no longer available.