When exploring the real estate listings, you’ll come across terms that may seem unclear, such as “under contract.” Knowing what “under contract” means in real estate is essential for both buyers and sellers. It helps you make informed decisions throughout the process, whether you’re purchasing a home or selling one.
House under contract meaning
In real estate, “under contract” indicates that both the buyer and seller have agreed on the terms of a sale and signed a contract, but the deal isn’t finalized yet. This means the property is in the process of being sold, but additional steps—like inspections, repairs, or securing financing—must be completed before the transfer is official. Although the home is no longer available for new buyers, the sale is not confirmed until all the conditions in the agreement are satisfied.
What does under contract mean for buyers?
For buyers, understanding what under contract means when buying a house is essential because it marks the beginning of the home-buying process. Once the contract is signed, the buyer enters a period where various conditions must be met to complete the purchase.
Inspection period and contingencies
In the under-contract phase, buyers usually arrange for a home inspection to uncover any potential problems with the property. This phase allows buyers to renegotiate the deal if major repairs are needed or to back out of the contract without penalties if the home is not up to their expectations.
Financing process
Once the property is under contract, the buyer’s lender will work to secure financing. This involves checking the buyer’s financial stability, evaluating the home’s value through an appraisal, and confirming that all loan conditions are fulfilled.
Can buyers back out?
Yes, buyers can back out during the under-contract phase, but they must have valid reasons. Typical reasons for backing out include problems found during inspections or difficulties in obtaining financing. However, withdrawing from the contract without fulfilling these conditions may lead to losing the earnest money deposit.
What does under contract mean for sellers?
The under contract meaning in real estate is just as significant for sellers. When a property is under contract, the seller has committed to selling the house to the buyer, and both parties are legally obligated to adhere to the terms of the agreement.
Responsibilities of sellers
Once the property is under contract, sellers must ensure the home meets the agreed-upon conditions. This could include making necessary repairs or providing required documents like the title or any property disclosures. The seller is generally responsible for addressing any title problems that must be resolved before the closing.
Can sellers accept backup offers?
If you’re wondering, if a house is under contract, can I still make an offer? Yes, but only as a backup offer. When a home is under contract, it is effectively removed from the market. However, if the original buyer backs out, the seller can consider other offers that were made as backups. For sellers, accepting a backup offer can be a wise move in case the first contract falls through due to financing issues or inspection problems.
Common contingencies in real estate contracts
Contingencies are conditions included in a real estate contract that need to be met before the sale can be finalized. They safeguard both buyers and sellers from unexpected issues. Some common contingencies include:
- Inspection Contingency: Allows the buyer to request repairs or negotiate the price based on the results of a home inspection.
- Financing Contingency: Ensures the buyer can back out of the deal if they are unable to secure financing.
- Appraisal Contingency: Protects the buyer if the property appraises for less than the purchase price.
What happens if a contract breach occurs?
Contract breaches can happen for a variety of reasons. In many cases, the consequences depend on which party is at fault and what the contract states regarding breaches.
Buyer breach of contract
If a buyer doesn’t follow through with the contract terms, like failing to get financing or backing out without a valid reason, the seller might keep the earnest money deposit. This deposit, usually 1% to 3% of the home’s price, helps cover the seller’s time and effort.
Seller breach of contract
If a seller decides to pull out of the deal after the property is under contract, the buyer may have legal grounds to sue for damages. In some cases, the court can force the seller to proceed with the sale, especially if the buyer has met all the contract’s requirements.
Can you break a real estate contract?
Both buyers and sellers may sometimes find themselves in situations where they need to break a real estate contract. While it is possible, doing so can result in penalties or legal actions.
- For Buyers: Backing out of a deal without meeting contingencies may result in losing your earnest money deposit.
- For Sellers: Breaking a contract can result in a lawsuit or other legal consequences, as well as financial penalties.
How to avoid issues during the under-contract phase
To prevent issues during the under-contract phase, staying organized and proactive is key. Here are some helpful tips for both buyers and sellers:
- Hire a Real Estate Agent: A professional agent can guide you through the process and ensure all necessary paperwork is completed.
- Stay on Top of Deadlines: Make sure you’re aware of all the contract deadlines for inspections, financing, and other contingencies.
- Communicate Regularly: Keep an open line of communication with your agent and the other party to avoid misunderstandings or delays.
A smoother path to homeownership or sale
The meaning of a property being under contract might seem tricky, but knowing the steps makes the whole process smoother. Buyers should focus on finishing inspections and securing their financing during this time, while sellers need to meet any conditions for the sale. Staying informed and working with a real estate agent is helpful for both sides. Even though the house is under contract, there are still things to take care of, but with the right plan, both the buyer and seller can successfully reach the finish line.