What Does Under Contract Mean When a House Is for Sale?

When a house is for sale and listed as “under contract,” it signifies a significant stage in the real estate process. This status indicates a seller has accepted an offer from a prospective buyer, and both parties have entered a legally binding agreement. However, “under contract” does not mean the sale is finalized; rather, it means the transaction is progressing towards completion, contingent upon certain conditions being met. It represents a phase where agreed-upon terms are fulfilled before the property officially changes ownership.

The Contractual Agreement

The core of an “under contract” status is the purchase agreement, also known as a sales contract, which formalizes the accepted offer. This document outlines the terms and conditions both buyer and seller must follow for the sale to proceed. Essential elements included are the agreed-upon purchase price, the targeted closing date, and details regarding the earnest money deposit. The earnest money, a good-faith deposit, demonstrates the buyer’s serious intent to purchase the property, usually held in an escrow account. This deposit commonly ranges from 1% to 3% of the home’s purchase price, though it can be higher in competitive markets.

The purchase agreement also identifies the buyer and seller, provides a legal description of the property, and specifies any items included or excluded from the sale. It details the payment terms and the method of ownership transfer. This agreement ensures legal enforceability for all parties.

Understanding Contingencies

Despite a signed contract, “under contract” does not equate to a closed sale because the agreement is dependent on contingencies. Contingencies are specific conditions that must be satisfied for the purchase agreement to become fully binding and for the transaction to finalize. These clauses protect both buyer and seller, allowing either party to withdraw from the contract without penalty if the specified conditions are not met. If a contingency is not fulfilled, the buyer can often recover their earnest money deposit.

A common condition is the inspection contingency, which grants the buyer a period, often 7 to 14 days, to conduct various property inspections. If inspections reveal significant issues, the buyer can negotiate repairs, request a price reduction, or cancel the contract. Another frequent contingency is the appraisal contingency, which protects the buyer if the home’s appraised value is less than the agreed-upon purchase price. This allows for renegotiation of the price or the option to withdraw from the deal without losing the earnest money.

The financing contingency, also known as a loan contingency, is for buyers who require a mortgage. It allows the buyer to terminate the contract and retain their earnest money if they are unable to secure the necessary loan approval. The sale of current home contingency permits a buyer to back out if they cannot sell their existing property by a certain date. These contingencies are safeguards, ensuring buyers are not obligated to purchase a property that does not meet their financial or structural expectations.

The Closing Process Steps

After the purchase agreement is signed and the home is “under contract,” a series of steps begin to move towards closing. The inspection period is an early phase, typically occurring within 7 to 10 days of the accepted offer. During this time, the buyer arranges for professional home inspections to identify any defects or necessary repairs, and subsequent negotiations for these issues may take place.

Simultaneously, if the buyer is obtaining a mortgage, the appraisal process commences. The lender orders an independent appraisal to determine the property’s market value, ensuring it supports the loan amount. Following the appraisal, the loan moves into underwriting, where the bank verifies the buyer’s financial information, employment history, and creditworthiness to approve the mortgage.

A title search is also conducted to investigate the property’s ownership history, confirming the seller has clear title and there are no undisclosed liens or claims. Title insurance is typically purchased to protect both the buyer and lender against future title disputes. Near the end of the process, usually within 24 to 72 hours before the closing, the buyer conducts a final walk-through of the property. This visit confirms the home is in the agreed-upon condition, all negotiated repairs have been completed, and specified items remain on the property. Finally, all necessary documents and funds are collected, leading to the official closing where ownership is transferred.

Related Listing Statuses

Understanding “under contract” also involves distinguishing it from other real estate listing statuses that can appear similar but have different implications. “Under contract” means a seller has accepted an offer, and a binding agreement is in place, but the sale is still subject to the satisfaction of contingencies. In some instances, particularly if the status is “active under contract,” the seller may still be open to receiving backup offers in case the primary deal falls through.

The status “pending” generally indicates a more advanced stage in the sales process compared to “under contract.” When a property is “pending,” it usually means all contingencies have been met or waived, and the transaction is very close to closing. While it is still technically possible for a pending sale to fall through, it is less likely than a property that is merely “under contract.”

The term “contingent” is often used interchangeably with “under contract,” but it can also specifically highlight that the sale is dependent on particular conditions. Sometimes, it implies a significant contingency, such as the buyer needing to sell their current home, making the deal less certain than a typical “under contract” status. In contrast, an “active” listing means the property is currently available for sale, and no offer has yet been accepted, indicating it is open for showings and offers from any interested buyer.