Detailed Explanation of What Does Under Contract Mean In Real Estate​?

When you pored through real estate pages, you may have noticed that homes are priced with words such as “Pending,” “Contingent,” or “Under Contract.” While these are confusing terms, they are referring to different stages in the home-selling process. One of the most commonly used is “Under Contract.” So, what exactly does it mean?

In simple terms, “Under Contract” implies that the seller has agreed to an offer from a buyer, and an agreement of purchase from both sides is signed. However, the sale is not quite final, though. The transaction is still in the process of being completed, and has been through inspections, financing approvals, appraisals, and other checks that have to be done before the transaction officially closes.

Think of it as an engagement – two people have agreed to get married, but they haven’t tied the knot yet. Similarly, in real estate, being “under contract” means that both buyer and seller want to go ahead, but there are certain steps that need to be taken before the deal is official.

What Happens When the Property is under Contract?

Once a property is under contract, there is a conditional period in the transaction of buying and selling it. During this time, the following things usually take place:

1. Home Inspection:

The buyer contracts to have a professional person inspect the property for structural problems, plumbing and electrical systems, the condition of the roof, and more. If there are any major problems discovered, negotiations may be reopened for repairs, discounts, or even cancellation of the contract.

2. Appraisal:

If the buyer is being financed through a mortgage loan, the lender will need to have the home appraised to make sure that the home is worth as much as the amount of the loan.

3. Financing Approval:

There should always be a final approval from his or her lender to be received by the purchaser. This involves verifying the income, checking the credit, and ensuring that all the financial conditions are fulfilled.

4. Title Search:

A title company finds out whether the home has any legal problems of ownership, unpaid taxes, or if there are any liens on the home. By following this step, you will ensure that the buyer will have a clean title.

What Are Contingencies?

Properties usually go under contract with contingencies. These are requirements that must occur for the sale to take place. Some of the common contingencies are:

• Inspection Contingency – Allows buyer to insist that such repairs be done or to cancel such contract if major defects are found.
• Financing Contingency – Lets the buyer have time for evacuation – The mortgage approval.
• Appraisal Contingency – In order to provide some protection to the buyer, if the appraised value of the home is less than expected.
• Home Sale Contingency – This allows the buyer to only go through with the purchase of the house if he or she sells his or her current home.

Assuming any of these contingencies is not satisfied, the buyer is usually given the option to walk out on the deal (without forfeiture of their earnest money deposit, usually).

Can A Home Under Contract be Sold To Someone Else?

This is a common question. Technically, yes, a seller is able to accept backup offers, but not able to accept backup offers if the validity of the existing contract has not expired. The home is no longer being actively for sale, but things can change if:

• The buyer applies for finance but does not make a deal
• Inspection issues to make the contract fall apart
• Contingencies are not met
• The buyer voluntarily retreats

In such cases, the property can then once again revert back into “Active” status, and with all new buyers to move into the property and purchase it.

What Does This Mean to Buyers?

If you are the buyer and you do stumble upon a home that is Under Contract, do not give up hope. It may be that it is not too late for us to submit our backup offer. Many deals are killed due to financing issues, inspection, or contingencies. If that does happen, then the seller will possibly consider your offer next.

What Does That Mean to Sellers?

If you’re a seller, being Under Contract means that an important milestone has been reached on your property. But it also means that you have to be patient and respond. The next few weeks would be spent on coordination between agents, inspectors, appraisers, and legal people. Be ready to negotiate for repairs, provide documentation, and have a look at closing requirements.

Conclusion 

Once all these contingencies are cleared, the financing is approved, and all the parties to the deal agree to final physical terms, the job is now noticed to sell to closing. It is at this point in time that the property is officially transferred. Contract under real estate would be:

• The offer given by the buyer is accepted
• There is an agreement that is legally binding.
• The home is not formally signed away.
• The selling is subject to inspections as well as financing, etc.
• Backup offers being considered can, however, be considered in some instances.

It’s an important stage in the home-buying process – an exciting time with much promise and with no finish line in sight.

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