What Does Under Contract Mean in Real Estate?

A real estate transaction involves several stages. Understanding terms used to describe a home’s market status is helpful for anyone buying or selling property.

Defining “Under Contract”

When a property is listed as “under contract,” a seller has accepted a buyer’s offer, and both parties have signed a legally binding purchase agreement. This agreement formalizes the accepted offer, committing both parties. While an offer has been accepted, the sale is not yet final, as specific conditions must be satisfied before closing. These conditions, known as contingencies, protect both the buyer and the seller. The property is generally off the market, but remains conditional until all terms are met.

The Contract Period: Key Milestones and Contingencies

During the “under contract” phase, several key milestones and contingencies occur, defining a timeframe for the transaction. This period allows the buyer to conduct due diligence and secure approvals. This phase often lasts four to eight weeks, depending on contingencies.

An inspection contingency provides the buyer a set period, commonly 7 to 10 days, to have the home professionally inspected for any issues. If significant problems are found, the buyer can request repairs, negotiate a price adjustment, or withdraw without penalty. If an agreement on repairs or concessions cannot be reached, the buyer may terminate the contract and receive their earnest money deposit back.

Another common condition is the appraisal contingency, which ensures the property’s value, as determined by an appraiser, supports the loan amount. Lenders require an appraisal to confirm the home’s value aligns with the loan amount, a process that takes one to two weeks. If the appraisal is lower than the sales price, the buyer, seller, and lender may renegotiate, the buyer might cover the difference, or the contract could terminate.

A financing contingency, also known as a loan contingency, allows the buyer 30 to 60 days to secure final loan approval. This protects the buyer, allowing withdrawal without losing earnest money if financing isn’t secured within the timeframe. The buyer applies for the mortgage, provides documentation, and receives lender approval.

A title search is also conducted during this time, often concurrently with the financing contingency. A title company or attorney examines public records to verify ownership and identify liens or claims against the property. This process takes one to two weeks to ensure a clear title transfer. If title issues are discovered that cannot be resolved, the transaction may be jeopardized.

What “Under Contract” Means for Other Buyers

When a property is “under contract,” an existing agreement is in place, making it less accessible for other potential buyers. While the property is generally considered off-market, it is not yet a closed sale. This status does not mean other interested parties are without options, as the initial deal could still fall through due to unmet contingencies.

Sellers may continue to show the property and accept backup offers, especially if the current contract has certain contingencies or a “kick-out clause.” A backup offer is a secondary offer on a home already under contract, positioning a buyer to step in if the original deal fails. If the seller accepts a backup offer, it becomes legally binding only if the first contract terminates. This arrangement provides a safety net for the seller and an opportunity for the backup buyer, although the likelihood of the primary deal falling through is low.

Common Terms: Pending vs. Under Contract

The terms “under contract” and “pending” are often used interchangeably, but represent different stages of a home sale. “Under contract” indicates that an offer has been accepted and a purchase agreement signed, but the transaction is still subject to fulfilling various contingencies. This means a binding agreement exists, but conditions like inspections, appraisals, or financing approvals are still in progress.

“Pending” signifies a more advanced stage in the sales process. When a home is listed as “pending,” all contingencies have been met or waived, and the sale is moving toward closing. At this point, the likelihood of the deal falling through is lower than when a property is “under contract.” While usage can vary by region or MLS rules, “pending” implies a higher certainty the transaction will be completed.