What Does “Under Contract” Mean in Real Estate?

When a home is listed as “under contract,” it signifies a seller has formally accepted a buyer’s offer, but the transaction is not yet finalized. This status indicates a significant step in the home-buying process, representing a legally recognized agreement. The period between offer acceptance and final closing involves various conditions that must be satisfied.

Understanding the “Under Contract” Status

A property listed as “under contract” means a legally binding purchase agreement has been signed by both the buyer and the seller. This agreement outlines the sale terms, including price, costs, and specific conditions that must be met before completion. While an agreement exists, the deal is not yet closed, reflecting an intermediate stage. It typically takes four to eight weeks from offer acceptance until the sale is complete.

This status differs from “active,” “pending,” or “sold.” An “active” listing means the property is available for offers, with no accepted agreement. A “pending” status generally means all contingencies have been met, and the sale is closer to closing, often with the property considered off the market. When a home is “under contract,” various contingencies still need to be fulfilled for the sale to proceed.

Key Stages and Contingencies

The “under contract” period involves several stages and the fulfillment of contingencies, which protect both the buyer and seller. These clauses are integral to the purchase agreement and must be satisfied for the transaction to move forward. If a contingency is not met, either party may withdraw from the contract without penalty.

One common contingency is the home inspection. This grants the buyer a specified period, typically seven to ten days, to have the property professionally inspected for defects. If the inspection uncovers problems like structural damage, electrical issues, or plumbing concerns, the buyer can negotiate for repairs, request a price reduction, or cancel the contract and receive their earnest money deposit back. This protects the buyer from unexpected repair costs after closing.

Another condition is the appraisal contingency. When a buyer finances a home, lenders require an appraisal to ensure the property’s value supports the loan. If the home appraises for less than the agreed-upon price, this contingency allows the buyer to renegotiate with the seller, pay the difference in cash, or withdraw from the deal and retain their earnest money. This protects the buyer from overpaying and the lender from financing a property for more than its market value.

The financing, or mortgage, contingency is also standard, ensuring the buyer can secure the necessary loan approval. This clause provides a timeframe for the buyer to obtain financing and allows them to exit the contract without penalty if unable to secure a mortgage. Finally, a clear title contingency allows the buyer to verify the property has a clean legal title, free from liens, disputes, or other claims that could affect ownership. If title issues arise that cannot be resolved, the buyer can typically terminate the contract, with their earnest money returned.

Potential for Other Buyers

Even when a property is “under contract,” it does not always mean it is completely off the market for other interested buyers. Some listings are “active under contract,” indicating that while an offer has been accepted, the seller is still open to receiving backup offers. This allows sellers to have an alternative buyer should the primary contract fail to close.

A “backup offer” is a formal, legally binding contract that positions a second buyer to purchase the home if the initial agreement falls through. If the first offer is terminated, the backup offer automatically moves into the primary position, potentially saving the seller time and effort of relisting. Sellers may accept backup offers, especially if they perceive the current deal has weaknesses, such as numerous contingencies or less secure buyer financing.

While a property is under contract, some sellers may continue to allow showings to prospective buyers. This practice helps solicit backup offers and maintains a pool of interested parties. Once a seller has entered a contract, they are generally committed to the current buyer and cannot simply accept a higher offer from a new buyer without risking legal repercussions, unless specific clauses permit it. Backup offers can also incentivize the primary buyer to fulfill their contractual obligations promptly.

When a Contract Does Not Close

Despite a signed agreement, an “under contract” status does not guarantee a completed sale; contracts can fall through for various reasons. Common factors include failing to meet contingencies outlined in the purchase agreement. For example, if a home inspection reveals unresolvable issues, or if the appraisal value is too low, the buyer may terminate the contract. If the buyer’s financing falls through due to changes in their financial situation or a lender’s decision, the deal can collapse.

Buyer’s remorse or a change of heart can also lead to a contract’s collapse, though this typically carries financial consequences for the buyer, such as earnest money forfeiture. Title issues, like undisclosed liens or errors in public records, can also prevent a sale from closing if not cleared by the seller. When a contract does not close, the property typically returns to an “active” status, allowing the seller to seek new offers.

For the buyer, financial implications often revolve around the earnest money deposit. If the contract terminates due to a contingency not being met, the buyer typically receives their earnest money back. If the buyer defaults without a valid contingency-related reason, they may lose this deposit. For the seller, a failed contract means returning earnest money, relisting the property, and potentially incurring additional marketing costs and delays. In some cases, a breach of contract by either party can lead to legal action, with damages sought by the non-breaching party.