What does under contract mean for a house?
Anyone who has ever tried to purchase a property knows how difficult it can be, especially in today’s extremely competitive market, to zero in on the perfect place to call home. If you’re on a tight budget, finding a home that meets all of your needs is an even bigger challenge.
Although the house you’re looking for may be “under contract,” it’s still within your price range. If a home is under contract, what does that indicate? Furthermore, if a home is under contract, is there any way to potentially purchase it?
This article will explain what “under contract” means in real estate and what you should do if you see a home you want to buy listed with that status.
While a seller may have accepted an offer on their property, the deal is still not final unless certain conditions are satisfied. The usual time frame for a sale to go through from acceptance to closing is four to eight weeks.
Prior to a property sale, there could be a number of outstanding contingencies. Let’s take a look at some of these.
1. Financial Contingencies
Finance contingencies are among the most typical in the real estate industry. The ability to secure mortgage or other forms of finance is crucial for the buyer to purchase the home. In such instance, the home will stay under contract until the buyer’s financing is greenlit.
2. Appraisal Contingencies
An appraisal contingency may also apply to properties that are under contract. Lenders cannot provide loans in excess of the property’s assessed value. With a down payment and closing fees already factored in, the buyer faces the potentially costly situation of having to pay the difference between the home’s estimated value and the actual sale price if the seller refuses to lower the price to meet the appraisal.
3. Home Sale Contingencies
A house can also be under contract when someone agrees to buy it as long as their old one sells first. This helps them avoid having to make more than one mortgage payment. There is a catch, though: the buyer will forfeit ownership of the property if they fail to sell it within the allotted time.
4. Home Inspection Contingencies
Home inspection contingencies are the last typical conditions that hold a property under contract. In the event of a serious problem, such as the roof or HVAC system requiring replacement, either party to the contract can include a clause allowing the buyer to terminate the agreement. This would force the seller to either find a different buyer who is more amenable to these issues or invest in the necessary upgrades themselves.
In real estate, what does “active under contract” mean?
The listing “active under contract” indicates that the seller is still considering other offers for the property. The sellers understand that signing the closing documents is necessary before the deal is considered final.
Even if the first offer doesn’t go through, they might reconsider and accept your offer instead, giving you the chance to win the house.
How Does “Under Contract” Differ from “Pending”?
There are a few other possible listing formats for homes: “sale pending,” “under contract,” and “active under contract.” The fact that some listing services and real estate markets use the words interchangeably makes it difficult to understand their differences.
However, in the vast majority of cases, a pending status indicates that the seller has accepted the offer and removed all contingencies. Even though the house sale is still subject to final inspection and other conditions, sellers usually do not entertain backup bids after a sale is pending.
If you have any questions about a home’s pending status, it’s best to consult your real estate agent.
FAQs About Under Contract
The following are some of the most often asked questions (FAQs) about a home that is under contract.
1. After a house goes under contract, should I make an offer?
When you put in a backup offer, you’re essentially spending time and energy preparing a plan to purchase a house that you usually have very little chance of really getting. Even if you’re dead set on a certain house, you shouldn’t let that stop you from looking at other homes that may be a better fit. You should be aware of the reasons why contracts fail so that you can steer clear of such problems in the future.
Naturally, you would like your backup offer to stand out if you submit one. One strategy for doing so is to offer a higher price than what the vendor is asking.
2. When a home is under contract, how often does the sale fall through?
The majority of homebuyers are taking out mortgages. This means they need to meet certain criteria in order to get funding. Before closing, individuals may be rejected if their financial status has changed after being given a budget to look for a house. Another reason a purchase can fall through is if an appraisal comes in low. The appraiser may even find that the home needs repairs to prevent a health and safety risk, which could lead to a failing evaluation.
The house inspection could also be the reason a purchase falls through if there are specified problems in the contract that allow one party to terminate the agreement. Finally, selling one’s current home is sometimes a condition for purchasing a new one. Here, the prior buyer risks missing out on a house-buying opportunity if they are unable to sell their present property in the allotted time.
3. When a contract is terminated, what are the consequence(s)?
Other prospective buyers will have a chance to buy the house if the buyer does not fulfill their responsibilities under the purchase agreement within the allotted time. Nevertheless, you should not rush into signing a contract and submitting your earnest money deposit at this time. Get to the bottom of why the last deal fell through by doing some research.
Keep in mind that the prospective buyer might be avoiding dealing with serious issues that were found during the home inspection or that the house did not pass the appraisal. You will have all the information you need, even if you decide to forward with an offer. Being in this position is always preferable.
Conclusion: Under Contract Does Not Mean Done Deal
Do not give up if you found the right home but it is already under contract. There are a lot of things that might happen to give you another chance, even though most properties under contract actually close. It’s important to know why a house fell through the cracks, but if your backup offer is accepted and there are no red flags, the previous buyer’s loss could be your gain.
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