Under Contract in Real Estate: Everything You Need to Know
If you’ve been browsing real estate listings, you might have come across properties labeled as “under contract.” This term is essential in buying and selling homes, yet its meaning isn’t always clear. What does under contract on the house mean? What happens after a home gets this label? Understanding the meaning of under contract in real estate can help buyers and sellers navigate this critical phase confidently.
What Does It Mean When a Home Is Under Contract?
When a property is marked as “under contract,” it means the seller has agreed to a buyer’s offer, and both sides have signed a formal, binding agreement. However, this is just one step closer to the sale—it’s not final yet. There are still several conditions, called contingencies, that need to be fulfilled before the deal is officially closed and the property changes hands.
An under-contract status means the property is nearing the finish line but remains technically available on the market. In some cases, sellers may continue to accept backup offers if the initial deal falls through.
Under Contract vs. Under Offer
Key Differences
The terms “under contract” and “under offer” often confuse prospective buyers, but they represent distinct stages of the home sale process:
Under Offer
At this stage, the seller has agreed to an offer, but the contracts have not yet been exchanged. This is a preliminary phase where important contingencies, such as securing financing or completing inspections, are still awaiting confirmation.
Under Contract
A contract has been signed, and both parties are legally bound to proceed if the contract terms are met.
Proximity to Completion
A property under contract is much closer to being sold than one under offer. However, both statuses indicate that the property isn’t yet fully off the market until all conditions are satisfied.
What Happens When a Property Is Under Contract?
The under-contract phase involves several critical steps, each moving the sale closer to completion. Here’s what typically happens:
1. Exchange of Contracts
After the buyer and seller settle on the terms, a formal sales agreement is drafted. This document, often reviewed and finalized by solicitors or conveyancers, includes essential details such as:
- Property address.
- Names of the buyer and seller.
- Sale price and payment terms.
- Deposit amount.
- Settlement date.
- Cooling-off period dates.
2. Cooling-Off Period
Most real estate transactions include a cooling-off period, which gives the buyer a set number of days to reconsider their decision. During this period, buyers can cancel the contract, typically incurring a small fee as a percentage of the property’s purchase price.
3. Settlement Period
The settlement phase follows the signing of contracts and lasts anywhere from 30 to 90 days. This time is used to finalize financing, arrange home insurance, transfer property ownership, and prepare the property for the buyer to move in. On settlement day, the buyer pays any remaining fees, receives the keys, and officially takes ownership.
Common Contingencies in Real Estate Contracts
Contingencies are requirements that must be met before the sale can progress. These conditions safeguard both parties, ensuring that the transaction moves forward without issues.
1. Appraisal Contingency
Appraisals determine the property’s value. If the appraised value comes in below the agreed purchase price, the buyer can back out of the deal without penalty or try to negotiate a lower price.
2. Home Inspection Contingency
Home inspections allow buyers to hire professionals to check for structural issues or other problems. If significant concerns arise, buyers can request repairs or withdraw from the contract within a specified period, often seven days.
3. Financing Contingency
This clause safeguards the buyer in case they are unable to obtain financing for the home. If the loan is denied, the buyer can walk away from the deal without forfeiting their deposit.
Can a Sale Fall Through After a Home Is Under Contract?
Yes, an under-contract status does not guarantee that the sale will close. Several factors can derail the process, including:
Financing Challenges
Buyers may struggle to secure a mortgage, especially if their financial situation changes unexpectedly.
Inspection Issues
Unresolved maintenance or safety concerns may lead buyers to back out of the deal.
Cooling-Off Period Decisions
Buyers may reconsider during the cooling-off period for various personal or financial reasons.
In these situations, the property could be relisted, or the seller may consider backup offers that were made while the property was under contract.
How Long Does a Property Stay Under Contract?
Most properties remain under contract for 30 to 60 days, though this timeframe varies based on:
- Meeting contingencies such as inspections or appraisals.
- Resolving financing or legal issues.
- Local real estate regulations.
Delays can occur due to incomplete paperwork, title disputes, or unexpected negotiations. Ensuring a smooth process requires timely communication and attention to detail from all parties.
Tips for Buyers Navigating the Under-Contract Process
1. Get Pre-Approval
Before making an offer, secure pre-approval for a mortgage. This reassures sellers of your financial capability and demonstrates that you are a serious buyer. Pre-approval also expedites the process if your offer is accepted, increasing your chances of replacing an existing offer if the initial deal falls through.
2. Include Protective Clauses
Include contingencies in your offer to protect your interests. For instance, a home inspection contingency ensures that the property meets your expectations before finalizing the deal. These clauses not only safeguard you but also show the seller that your offer is well-considered, making it more attractive if they decide to consider backup buyers.
3. Work with Experts
Engage a qualified solicitor or conveyancer to handle legal and administrative tasks. Their expertise ensures your offer is well-prepared and free from errors. A polished and professional offer is more likely to stand out as a strong alternative should the initial deal collapse.
4. Strengthen Your Backup Offer
If the property is under contract but the seller is accepting backup offers, take these steps to increase the chances of your offer being chosen:
Offer Competitive Terms
Match or exceed the seller’s asking price if possible, and minimize contingencies to make your offer more attractive.
Submit a Personal Letter
Attach a letter explaining why the property is perfect for you. A heartfelt message can help build rapport with the seller.
Be Ready to Move Quickly
Demonstrate flexibility with timelines for inspections, financing, or closing, ensuring the seller knows you can proceed swiftly if the current deal falls apart.
5. Stay Engaged
Maintain open communication with the seller’s agent to express your continued interest in the property. Being proactive shows the seller you are serious and ready to act if given the opportunity.
Under Contract Doesn’t Mean the Door Is Closed
What does under contract on a house mean? While it signals that a buyer and seller have agreed on terms, it doesn’t mean the house is completely off the market. Challenges lie ahead if you want to pursue the property, but there’s still a chance to step in. Staying prepared, maintaining open communication with the seller’s agent, and presenting a strong, appealing backup offer can improve your odds of success. If your dream home is under contract, don’t lose hope—you might still make it yours.
