What Does Under Contract Mean in Real Estate?

When a property is listed as “under contract” in real estate, it signifies that a seller has accepted an offer from a buyer, but the sale is not yet finalized. This status indicates a formal agreement has been reached between both parties on the terms of the sale. It marks a common and important phase in the home buying and selling process, setting the stage for the transaction to progress toward completion. While an offer is accepted, the property remains in a conditional state, subject to specific requirements being met before the ownership officially transfers.

Understanding the Under Contract Status

Immediately after an offer is accepted, and a property moves to “under contract” status, a legally binding agreement is established between the buyer and seller. This agreement, while conditional, outlines the responsibilities of both parties as they work towards closing the sale. The property is typically removed from the active market, signaling to other potential buyers that an agreement is in place.

During this period, both the buyer and seller engage in due diligence to ensure all conditions of the contract are satisfied. For buyers, this often involves securing necessary financing, conducting thorough property inspections, and obtaining an appraisal to confirm the property’s value. This phase serves to protect both parties, allowing time to address any unforeseen issues before the transaction becomes final. The “under contract” period typically lasts between 4 to 8 weeks, but this can vary depending on the specific terms and conditions outlined in the contract.

Common Contingencies

Real estate contracts frequently include contingencies, which are conditions that must be met for the sale to proceed without penalty. These clauses provide an “escape hatch” for buyers or sellers if certain requirements are not fulfilled within a specified timeframe. If a contingency is not met, the contract can often be terminated, and the buyer may receive their earnest money deposit back.

A common financing or mortgage contingency allows the buyer to withdraw from the deal if they cannot secure a loan within the agreed-upon period. This protects the buyer from being obligated to purchase a home they cannot finance. Another important safeguard is the home inspection contingency, which grants the buyer the right to have the property professionally inspected for potential issues. If significant problems are discovered, the buyer can negotiate repairs, a price reduction, or even terminate the contract. Home inspections typically cost between $281 and $402, varying by location and property size.

The appraisal contingency ensures the property’s value, as determined by a licensed appraiser, meets or exceeds the agreed-upon sales price. Lenders usually require an appraisal to confirm the collateral’s value before approving a mortgage. If the appraisal comes in lower than the purchase price, the buyer may renegotiate the price or exit the contract. Appraisal costs generally range from $314 to $423, but can be higher for larger or unique properties. A home sale contingency protects a buyer who needs to sell their current home before completing the purchase of a new one, allowing them to avoid the burden of owning two homes simultaneously and ensuring they have the necessary funds for the new transaction.

Distinguishing Property Statuses

Understanding various property statuses helps in navigating the real estate market, as each signifies a different stage of the sales process. An “active” listing means the property is readily available for sale, with no accepted offers yet. Interested buyers can schedule showings and submit offers on active properties.

When a property is “under contract,” it indicates an offer has been accepted, but the sale is still conditional upon various terms, such as inspections and financing. In some systems, this status may be referred to as “active under contract,” explicitly noting that the seller might still be accepting backup offers. A “contingent” status is often used interchangeably with “under contract” or is a subcategory, meaning specific conditions must be met for the deal to proceed. These conditions are usually outlined in the sales agreement.

A “pending” status typically means all contingencies have been satisfied, and the transaction is moving closer to its final closing. At this stage, the property is generally considered off the market, and sellers are usually not entertaining new offers. While the exact definitions can vary slightly among different Multiple Listing Service (MLS) systems and regions, pending status implies a high likelihood of the sale completing.

Buyer and Seller Considerations

For potential buyers, encountering a property listed as “under contract” does not always mean the opportunity is lost. Buyers may consider submitting a “backup offer,” which is an offer submitted after another offer has already been accepted. If the primary contract falls through due to unfulfilled contingencies, the backup offer can then move into the primary position, potentially allowing the backup buyer to purchase the home. This can be a strategic move, especially in competitive markets, but buyers should understand that their earnest money deposit will be tied up in escrow until the primary deal either closes or falls through.

Sellers, on the other hand, have ongoing obligations during the “under contract” phase to ensure a smooth transaction. This includes facilitating access for inspections and appraisals, providing necessary disclosures about the property, and fulfilling any agreed-upon repairs. Timely adherence to these responsibilities is important to avoid delays or potential forfeiture of the contract. Some sellers may continue to entertain showings or accept backup offers, particularly if they have reason to believe the initial deal might not close, or if their contract allows for it. This provides a safety net, potentially saving time and effort if the primary sale encounters unforeseen issues.