When navigating the complex world of real estate transactions, one of the most common phrases you'll encounter is "under contract." But what does under contract on a house mean? Whether you’re a first-time homebuyer, a seasoned investor, or simply curious about the process, understanding this term is essential. In this article, we’ll explore the meaning behind "under contract," how the process unfolds, and what it signifies for buyers and sellers alike.
Understanding the Meaning of "Under Contract" in Real Estate
Definition of "Under Contract"
When a property is described as "under contract," it indicates that the seller and buyer have entered into a legally binding agreement, typically through a signed purchase and sale contract. This contract signifies that both parties have agreed on the terms of the sale, including the price, contingencies, and closing date, and are moving forward with the process of transferring ownership.
In essence, "under contract" means the property is no longer actively on the market for sale. It is in a transitional phase where the sale is pending completion, subject to certain conditions being met. This status is different from "for sale," which indicates the property is actively available to prospective buyers.
The Process Leading to "Under Contract"
1. Listing the Property
The process begins when a homeowner lists their property for sale, often with the assistance of a real estate agent. The property is marketed, shown to prospective buyers, and negotiations commence.
2. Offer and Negotiation
A potential buyer submits an offer, which includes the proposed purchase price, contingencies, and other terms. Negotiations may follow until both parties agree on the final terms.
3. Executing a Purchase Agreement
Once the buyer and seller agree, they sign a legally binding contract, often called the purchase and sale agreement. This document outlines the specifics of the transaction, including:
- Purchase price
- Earnest money deposit
- Contingencies (e.g., financing, inspection, appraisal)
- Closing timeline
- Additional conditions
4. Going "Under Contract"
After the contract is signed, the property status updates to "under contract." At this point, the home is no longer available for other offers, though the sale is not yet finalized.
What Does "Under Contract" Imply for Buyers and Sellers?
Implications for Buyers
For potential buyers, seeing a house marked "under contract" usually indicates:
- The property has an accepted offer, but the deal isn’t closed.
- The buyer is in the process of completing due diligence, including inspections, financing, and appraisal.
- If contingencies are in place, the buyer has a set period to fulfill them. Failing to do so could result in losing earnest money or losing the property.
Implications for Sellers
For sellers, having a property "under contract" means:
- They've secured an agreement with a buyer, reducing the likelihood of the property remaining on the market.
- They are bound by the contract to proceed through closing, assuming contingencies are satisfied.
- They may still be subject to certain conditions, such as inspections or financing approvals, before the sale is finalized.
Contingencies and Their Role During the "Under Contract" Phase
Contingencies are conditions that must be met for the sale to proceed. Common contingencies include:
- Home Inspection Contingency: Allows the buyer to have the property inspected and negotiate repairs or withdraw if issues are found.
- Financing Contingency: Ensures the buyer can secure a mortgage; if not, they can back out without penalty.
- Appraisal Contingency: Protects the buyer if the property appraises below the purchase price.
- Title Contingency: Ensures there are no legal issues with the property's title.
The presence and satisfaction of these contingencies determine whether the sale proceeds or falls through.
What Happens After the Property Is "Under Contract"?
Due Diligence and Inspections
During this phase, the buyer conducts inspections, appraisals, and finalizes financing arrangements. They may negotiate repairs or concessions based on inspection findings.
Contingency Removal
Once contingencies are satisfied, the buyer formally removes them, signaling their commitment to proceed with the purchase.
Closing Process
The transaction moves towards closing, where ownership transfers from seller to buyer. This involves signing legal documents, paying closing costs, and recording the deed.
Types of Contract Statuses Related to "Under Contract"
While "under contract" is a common term, there are variations to consider:
- Pending: The transaction is moving towards closing, and all contingencies have been satisfied.
- Contingent: The sale depends on certain conditions; if contingencies are not met, the contract may fall apart.
- Backup Offers: Additional offers submitted in case the current contract falls through.
Understanding these nuances helps buyers and sellers gauge the likelihood of the sale closing successfully.
Can a Property Still Be "Under Contract" and Not Close?
Yes. A property can be "under contract" and ultimately not close. Common reasons include:
- Failure to meet contingencies (e.g., inspection issues, financing denial)
- Unexpected contractual breaches
- Title complications
- Buyer or seller changing their minds
In such cases, the property may go back on the market, and the seller may accept a new offer.
Conclusion: The Significance of "Under Contract" in Real Estate
Understanding what "under contract" means is crucial for anyone involved in real estate transactions. It signifies a critical stage where the property is temporarily off the market as both parties work towards closing the sale. For buyers, it’s an exciting but cautious phase filled with inspections and contingencies. For sellers, it represents a step closer to finalizing the sale, with obligations to fulfill. Recognizing the implications of this status helps manage expectations and navigate the process more effectively.
Whether you're contemplating buying a home or selling one, knowing the ins and outs of "under contract" status empowers you to make informed decisions and stay engaged throughout the journey toward homeownership.
Frequently Asked Questions
What does it mean when a house is 'under contract'?
When a house is 'under contract,' it means the seller has accepted an offer from a buyer, and both parties are moving toward closing, but the sale has not yet been finalized.
Can I still make an offer on a house that's under contract?
Yes, you can make an offer, but typically the seller is not obligated to accept it. In some cases, houses under contract may become available again if the current deal falls through.
Does 'under contract' mean the house is sold?
Not necessarily. 'Under contract' indicates an agreement in progress, but the sale isn't complete until all conditions are met and the closing is finalized.
What should I do if I want a house that's under contract?
You can express your interest to the listing agent and ask to be kept informed if the current contract falls through. Alternatively, consider other similar properties that are available.
How long does a house typically stay under contract?
The duration varies; it can range from a few days to several weeks, depending on the complexity of the sale and contingencies involved. Once all conditions are satisfied, the house moves to closing.
Can contingencies cause a house to go back on the market after being under contract?
Yes, if contingencies such as inspections or financing are not met within the specified timeframe, the deal can fall apart, and the house may be relisted for sale.
