Buying a home can be an exhilarating yet confusing journey. One moment, you could be scrolling through listings, and the next, your heart sinks when you see a property marked “under contract.” So, what does it mean when a house is under contract? Understanding this term is crucial for both buyers and sellers in the real estate market.
What Does “Under Contract” Mean in Real Estate?
Definition of Under Contract
A house is considered under contract when the seller has accepted a buyer’s offer, but the sale has not yet reached its final stages. This means that both parties have signed a legal agreement that outlines the terms and conditions of the sale. However, it’s essential to note that although the property is effectively off the market, the sale can still fall through due to specific contingencies.
Legal Agreement
The legal agreement, also referred to as the purchase agreement, is a crucial document. It details everything from the sale price to any specific conditions that must be met before the sale can close. This agreement acts as a safeguard for both parties, ensuring that they are legally bound to the terms they have accepted.
Contingencies Explained
Even though a house is under contract, it’s essential to understand that various contingencies can still apply. These contingencies are conditions that need to be met for the sale to proceed. If these conditions are not met, the sale can collapse, meaning the house may be taken off the market.
Differentiating “Under Contract” from Similar Terms
Understanding the term “under contract” is also about distinguishing it from similar terms like “contingent” and “pending.” Let’s briefly clarify these terms:
- Under Contract: Accepted offer, contingencies may still apply, but the sale is not final.
- Contingent: Sale depends on certain conditions being met (e.g., financing, home inspections).
- Pending: All contingencies have been satisfied, the sale is in its final stages, and no new offers will be accepted.
These distinctions are vital for buyers and sellers as they navigate the real estate landscape.
Understanding Related Terms: Under Contract vs. Contingent vs. Pending
Under Contract
When a house is marked as under contract, it indicates that a buyer’s offer has been accepted, but there are still conditions that could prevent the sale from closing successfully. This phase typically involves various inspections and approvals that must be completed before the sale can be finalized.
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Contingent
The term “contingent ” refers to a situation where the sale depends on specific conditions being met. Common contingencies include:
- Financing Contingency: The buyer must secure a mortgage approval.
- Home Inspection Contingency: The buyer has the right to back out or renegotiate if significant issues are discovered during the inspection.
- Appraisal Contingency: The sale is contingent upon the home appraising at or above the agreed-upon sale price.
Pending
A pending status indicates that all contingencies have been met or waived and the sale is in its final stages. At this point, no new offers are accepted, and the property is close to being sold.
Importance of Understanding These Terms
Understanding these distinctions is crucial for both buyers and sellers. For buyers, knowing the difference between these statuses can help manage expectations and inform their next steps. For sellers, it provides insights into market dynamics and the likelihood of closing a sale.
Common Contingencies That Keep a House Under Contract
Understanding the common contingencies that keep a house under contract can help you navigate the buying process more effectively. Here are some of the most frequent contingencies you might encounter:
Financing Contingency
A financing contingency means that the buyer must secure mortgage approval within a specified time frame. If the buyer is unable to obtain financing, the sale may fall through, allowing the seller to consider other offers.
Home Inspection Contingency
With a home inspection contingency, the buyer retains the right to have the property inspected. If significant issues are discovered, the buyer can either negotiate repairs with the seller or withdraw from the deal altogether.
Appraisal Contingency
An appraisal contingency ensures that the house appraises at or above the sale price. If the appraisal comes in lower, the buyer may have the option to renegotiate the price or walk away from the contract.
Home Sale Contingency
In a home sale contingency, the buyer must sell their current home before they can finalize the purchase of the new property. This condition is prevalent among buyers who need the equity from their current home to finance a new one.
Contingency Periods
Contingency periods typically last between 30 to 60 days, during which these conditions must be satisfied. Understanding these timelines is crucial for both buyers and sellers to ensure the process moves smoothly.
What Happens After a House Goes Under Contract?
Once a house goes under contract, several steps need to be completed before closing. Here’s a breakdown of what happens during this crucial phase:
Steps from Contract Acceptance to Closing
- Inspections: The buyer arranges for professional inspections to assess the property’s condition.
- Appraisals: The lender may require an appraisal to ensure the home’s value aligns with the loan amount.
- Loan Approval: The buyer must secure final mortgage approval from their lender.
- Title Search: A title search is conducted to ensure there are no legal issues with the property’s title.
- Closing Disclosure: Buyers receive a closing disclosure form detailing all costs associated with the sale.
Role of Real Estate Professionals
Throughout this process, the roles of real estate agents, lenders, and escrow agents are vital. They facilitate communication between parties, manage paperwork, and ensure that all contractual obligations are met.
Competing Offers and Backup Offers
Interestingly, even while a house is under contract, there may still be competing offers or backup offers. This situation can create leverage for the seller, especially if the current contract is shaky or if contingencies are not being met.
Implications for Interested Buyers
For buyers still interested in a property that is under contract, it’s essential to stay informed. If the contract falls through, having a backup offer ready can be advantageous.
Can You Still Buy a House That’s Under Contract?
You might be wondering, can you still buy a house that’s under contract? The answer is yes but with some caveats. Here’s what you need to know:
Submitting Backup Offers
Sometimes, sellers will accept backup offers even if a property is under contract. If you are seriously interested in a home, submitting a backup offer can put you in a favourable position should the current contract fall through.
Monitoring Status
Interested buyers must monitor the status of the contract. Real estate websites and your agent can help you stay informed about any changes. If a property becomes available again, being prepared to act quickly can be a game-changer.
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Tips for Buyers
- Stay Informed: Regularly check the property’s status.
- Be Prepared: Have your financing ready to go in case an opportunity arises.
- Work with Your Agent: Your real estate agent can provide insights and may have connections that can help you stay informed.
Why Understanding “Under Contract” Matters for Buyers and Sellers
Understanding the term “under contract” is essential for both buyers and sellers for several reasons:
For Buyers
- Managing Expectations: Knowing that a house is under contract helps you adjust your expectations and avoid wasting time on properties that may not be available.
- Avoiding Wasted Effort: You can focus your search on actively available properties rather than those that are already in the process of being sold.
- Knowing When to Move Fast: If you find a property you love, understanding the implications of “under contract” can help you determine whether to submit a backup offer or pivot to another property.
For Sellers
- Understanding Market Dynamics: Knowing how the “under contract” status affects buyer interest can help you make informed decisions about future listings.
- Negotiating Contingencies: Understanding common contingencies allows sellers to prepare for negotiations and set realistic timelines.
- Managing Offers: Being aware of potential backup offers can help sellers effectively navigate multiple offers.
Planning Timelines and Finances
Both buyers and sellers benefit from understanding how the “under contract” phase aligns with their timelines and financial considerations. This knowledge empowers them to make better choices throughout the process.
Tips for Navigating the Under Contract Phase Successfully
Navigating the “under contract” phase can be tricky, but here are some tips to help you manage this critical stage effectively:
For Buyers
- Get Pre-Approved for a Mortgage: Being pre-approved can speed up the buying process and strengthen your position should an opportunity arise.
- Conduct Thorough Inspections: Don’t skip out on inspections; they can save you from costly surprises down the line.
- Stay in Communication with Your Agent: Regular updates from your real estate agent can keep you informed and prepared.
For Sellers
- Be Transparent About Contingencies: Clearly communicate any contingencies to prospective buyers to foster trust and smooth negotiations.
- Respond Promptly to Offers: Quick responses can help maintain buyer interest, especially if the current contract is at risk.
- Prepare for Possible Backup Offers: Knowing the potential of backup offers can help you strategize for a successful sale.
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