When navigating the real estate market, you'll often hear the term "home under contract" thrown around, whether from real estate agents, listings, or other buyers and sellers. But what exactly does this phrase mean? Understanding the ins and outs of a property being under contract is crucial for anyone involved in buying or selling a home. This article provides a detailed explanation of what a home under contract signifies, the process involved, and what each party should expect.
Understanding the Meaning of a Home Under Contract
Definition of a Home Under Contract
A home under contract refers to a property for which the seller has accepted an offer from a buyer, and both parties have entered into a legally binding agreement—often called a purchase contract or sales agreement. While the property is not yet officially sold or closed, it is in a transitional phase where the seller has committed to selling the home to the buyer, pending the completion of certain conditions.
In essence, a home under contract indicates that negotiations have concluded successfully, and the buyer and seller are proceeding toward closing, assuming all contingencies are met.
Difference Between "Under Contract" and Other Terms
It's important to distinguish a home under contract from other common real estate terms:
- For Sale: The property is available and has not yet accepted any offers.
- Pending: Similar to under contract, indicating an accepted offer is in place, but the term "pending" often implies that the sale is imminent and may already be close to closing.
- Sold: The transaction has been completed, and ownership has officially transferred.
While these terms can sometimes be used interchangeably depending on regional preferences, "under contract" generally refers to a stage where the sale is actively progressing but not finalized.
The Process of a Home Going Under Contract
Understanding the typical steps leading up to and following a property being under contract can help buyers and sellers navigate the process smoothly.
1. Offer Submission and Negotiation
The process begins when a prospective buyer submits an offer, which includes proposed price, contingencies, and other terms. The seller reviews the offer and may accept, reject, or negotiate further.
2. Acceptance and Contract Signing
Once both parties agree on the terms, they sign a purchase agreement. This legally binding document lays out the responsibilities and contingencies tied to the sale.
3. Escrow and Contingency Periods
After the contract is signed, the home is officially under contract. During this phase:
- Buyers perform inspections, such as home inspections, pest inspections, or appraisals.
- Buyers secure financing, if applicable.
- Contingencies are fulfilled or waived.
The length of this period varies but typically lasts between 30 to 60 days.
4. Closing Preparation
If all contingencies are satisfied, the lender processes the loan (if applicable), and the parties prepare for closing. This involves title searches, final walk-throughs, and signing closing documents.
5. Closing and Transfer of Ownership
Finally, on closing day, the buyer pays the remaining funds, and ownership is transferred. The property is now officially sold, and the home is no longer under contract.
What Does a Home Under Contract Mean for Buyers?
For buyers, a property being under contract signifies that their offer has been accepted, but the journey toward ownership is not yet complete.
Implications for Buyers
- Conditional Stage: The sale is contingent upon satisfying certain conditions such as inspections, financing, or appraisal.
- Limited Negotiation: Major negotiations are typically concluded, but minor adjustments may still be possible before closing.
- Protection Period: During contingencies, buyers can back out without losing earnest money if conditions aren’t met.
What Buyers Should Do During This Period
Buyers should:
- Complete inspections promptly and review reports carefully.
- Work closely with their lender to ensure financing approval.
- Stay in communication with their real estate agent and the seller’s agent.
- Attend all scheduled appointments, such as appraisals and walkthroughs.
What Does a Home Under Contract Mean for Sellers?
For sellers, a property being under contract is a positive step toward closing but also requires careful management.
Implications for Sellers
- Withdrawal Limitations: Sellers generally cannot accept a new offer or cancel the contract unless contingencies are not satisfied.
- Potential for Sale Fall-Through: If contingencies aren’t met or inspections reveal issues, the deal might fall apart, and the home can go back on the market.
- Opportunity to Market the Property: During the under-contract phase, sellers might continue to show the home or accept backup offers.
Steps for Sellers During Under Contract Period
Sellers should:
- Maintain the property’s condition for inspections and final walkthroughs.
- Communicate regularly with their real estate agent and the buyer’s team.
- Be prepared for possible negotiations related to contingencies or repairs.
- Avoid accepting additional offers unless they have agreed to accept backup offers or the contract allows for it.
Common Contingencies and Their Impact
Contingencies are conditions specified in the purchase contract that must be satisfied or waived for the sale to proceed. Some common contingencies include:
- Inspection Contingency: Allows the buyer to renegotiate or withdraw if inspections reveal significant issues.
- Appraisal Contingency: Protects the buyer if the home appraises below the purchase price.
- Financing Contingency: Ensures the buyer can secure a mortgage; if not, they can back out without penalty.
- Title Contingency: Confirms there are no liens or legal issues with the property's title.
The satisfaction or waiver of these contingencies determines whether the deal moves forward to closing.
Is a Home Under Contract the Same as a Pending Sale?
In many regions, "under contract" and "pending" are used interchangeably; however, some markets differentiate between the two:
- Under Contract: Indicates the offer has been accepted, and contingencies are in place.
- Pending: Usually signifies that all contingencies have been satisfied, and the sale is close to closing.
Understanding regional terminology can help manage expectations and planning.
Final Thoughts
A home under contract represents a significant milestone in the real estate transaction process. For buyers, it means their offer has been accepted, and they are moving toward ownership, contingent on fulfilling certain conditions. For sellers, it indicates a pathway toward closing but also requires patience and careful management to ensure the deal successfully completes.
Knowing what a property under contract entails helps both parties navigate the complexities of real estate transactions with confidence. Whether you are buying your first home or selling a property, understanding this phase ensures you are prepared for what comes next and can make informed decisions throughout the process.
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If you're considering purchasing or selling a property, consult with experienced real estate professionals to guide you through each step, especially during the under-contract phase. Being informed and proactive can make all the difference in achieving a smooth and successful transaction.
Frequently Asked Questions
What does it mean when a home is 'under contract'?
When a home is 'under contract,' it means that the seller and buyer have agreed on the terms of the sale, and a purchase agreement has been signed, but the sale has not yet been finalized or closed.
How long does a home typically stay 'under contract' before closing?
The duration varies, but generally, a home remains 'under contract' for about 30 to 60 days, depending on the complexity of the transaction and contingencies involved.
Can a home under contract still be shown or sold to other buyers?
Usually, once a home is 'under contract,' it is considered off the market, but in some cases, if the deal falls through, it may become available again. It's best to confirm with the seller or agent.
What contingencies are usually involved when a home is 'under contract'?
Common contingencies include home inspections, financing approval, appraisal, and sometimes sale of the buyer's current home. These conditions must be satisfied before the sale can close.
Does 'under contract' mean I can still negotiate the price?
Once a home is 'under contract,' negotiations are generally limited. However, if issues arise during inspections or contingencies, there may be room for renegotiation before closing.
