When Is a House Considered Under Contract?

When a property is listed as “under contract,” a seller has formally accepted a buyer’s offer. This status indicates an agreement is in place, but the sale has not yet been finalized. Certain conditions remain to be fulfilled before ownership transfers.

Forming the Agreement

The journey to a house being under contract begins when a prospective buyer submits a formal written offer to the seller. This offer details the proposed purchase price, desired closing date, and any specific terms or conditions. The seller then reviews this proposal and can accept, reject, or counter the offer with revised terms.

Once the seller accepts the buyer’s offer, an agreement is reached on the fundamental terms. The buyer provides earnest money, a deposit demonstrating serious intent to purchase. Earnest money ranges from 1% to 3% of the purchase price. This amount is held in an escrow account and credited towards the buyer’s down payment or closing costs at settlement.

Following the agreement on terms and earnest money deposit, both parties sign a purchase agreement or sales contract. This document legally binds them to the transaction, outlining all agreed-upon conditions, timelines, and responsibilities. Signing this contract marks the house as “under contract.”

Contingencies and Due Diligence

After the purchase agreement is signed, the transaction enters a phase where conditions, known as contingencies, must be satisfied. These contingencies protect both parties, allowing them to withdraw without penalty if certain conditions are not met. This period is the due diligence phase, during which the buyer investigates the property.

A common contingency is the home inspection, allowing the buyer to hire a professional to evaluate the property’s condition. If significant defects are discovered, the buyer can negotiate repairs, request a price reduction, or terminate the contract if an agreement cannot be reached. The appraisal contingency ensures the property’s value meets or exceeds the agreed-upon purchase price. If the appraisal comes in lower, the buyer might renegotiate the price or cancel the agreement.

A financing (loan) contingency is standard, making the sale dependent on the buyer securing mortgage approval. A title contingency ensures the seller has clear title to the property. During the due diligence period, buyers perform these checks to ensure the property aligns with their expectations and financial capabilities. The contract remains binding throughout this period, but its finality depends on these conditions being met or waived.

Understanding Contract Statuses

Real estate listings often use specific terms to describe a property’s status once an offer has been accepted, providing insight into how far along the sale process is. These statuses indicate the likelihood of the deal closing and whether other buyers might still have an opportunity to make an offer.

One common status is “Contingent” or “Active with Contingency,” which means an offer has been accepted, but the sale is dependent on certain conditions being met, such as a successful home inspection or financing approval. In this scenario, the seller may still entertain backup offers, especially if the current contract has not yet cleared all its conditions. This status signals that while a primary agreement exists, there remains a possibility the deal could fall through.

Another status, “Pending,” generally indicates a more advanced stage of the transaction. When a property is listed as pending, it usually means that all contingencies have been satisfied or waived, and the sale is moving directly towards closing. At this point, the property is typically taken off the market, and sellers are less likely to accept backup offers, as the transaction is considered to be on a firm path to completion.

Some areas may use terms like “Active with Contract,” which is similar to contingent and implies that while an offer is accepted, the seller is still open to receiving and considering backup offers. Understanding these distinctions helps potential buyers gauge their chances of acquiring a property and helps sellers manage expectations regarding the sale’s progress.

Transition to Closing

Once all contingencies outlined in the purchase agreement have been satisfied or waived, the transaction moves into its final stages, culminating in the closing. This phase focuses on the administrative and financial procedures required to legally transfer ownership from the seller to the buyer.

A significant step involves the buyer receiving final loan approval and commitment from their lender, solidifying the financing aspect of the purchase. Shortly before closing, the buyer typically conducts a final walk-through of the property. This inspection ensures the home is in the agreed-upon condition and that any negotiated repairs have been completed.

The buyer also reviews critical documents, including the Closing Disclosure, which details all financial aspects of the transaction, such as loan terms, fees, and credits. At the closing appointment, both parties, along with their representatives, sign numerous legal documents, including the deed, mortgage note, and other loan paperwork. Funds are then transferred, and the deed is recorded with the local government, legally transferring ownership to the buyer. Finally, the buyer receives the keys, completing the home purchase.