What Does “Under Contract” Mean in Real Estate?
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This is a common question that we receive from readers. If you want to learn what this term means, too, join us in our article below.
We will cover the meaning of “under contract”, take on interesting topics like contingencies, and explain other common real estate terms.
But back to the question at hand, “What does a house under contract mean?”
“Under Contract“ in the real estate industry means that a property is in a sales process between a buyer and a seller.
The term “Under Contract“ is also used to let all parties inside and outside of the purchase agreement know that the buyer and seller both agree to the terms and conditions of the sale. The “Under Contract“ stage starts when a buyer places an offer on a property, and the seller accepts it.
How Contingencies Affect a House Under Contract?
Now that we have a comprehensive view of the “under contract“ term, let’s cover the contingencies that can affect the sale of a house.
Real estate documents that are in the “under contract“ phase include different types of contingencies. These conditions are added to contracts to give buyers more options in the property agreement.
For starters, buyers have the option to withdraw themselves from a deal if a condition is not met. However, this would be the most extreme case in a property agreement.
Contingencies are often added to contracts to empower the buyer to request modifications to agreements or ask the seller to repair damages to a house before the sale is finalized.
Let’s dive deeper into a few contingencies that can affect a property that has an “under contract“ status.
1. Financing Contingencies
A financing contingency can be added to a contract to give the buyer a set amount of time to find funding to support the purchasing of a house. This contingency lets a buyer withdraw from a contract if they cannot find funds or a loan in the agreed timeline to complete the sale process.
The result of this contingency is that the seller will not be able to sell the house to the buyer and will have to keep it on the market for longer.
2. Appraisal Contingencies
An appraisal contingency is another common condition that can appear in a purchase agreement. It lets the buyer get an objective evaluation of the property. If the appraisal of the property is lower than the seller’s asking price, the buyer has a few options:
- They can request to re-negotiate the price of the property.
- They can ask the seller to match the price to the property’s appraisal.
- They can withdraw from the property agreement without facing any penalties.
3. Home Sale Contingencies
This contingency is added to a contract when the buyer needs to sell their home before the deal can be finalized. This is a common practice that buyers employ to acquire funds to purchase a new property.
The home sale contingency protects buyers and gives them the power to withdraw from a purchase agreement if they cannot sell their current house. There will be a specific timeline agreed upon by the seller and the buyer that will dictate how much time the buyer has to sell their property.
4. Home Inspection Contingencies
There are many more contingencies, but the final one we are discussing in this article is a home inspection. This contingency is added to a contract to let the buyer objectively scan the house they are interested in purchasing.
During the examination of the property, the buyer could find that the house is damaged and needs repairs. In this instance, the buyer can ask the seller to mend the damages or ask for a lower purchasing price on the property.
If the buyer and seller cannot come to an agreement, the home inspection contingency gives the buyer a chance to back out of the contract.
Pending Vs. Under Contract
Moving on to another common real estate term used for contract management, i.e., pending contracts.
Pending and “under contract“ are two terms used to describe the status of agreements in the real estate industry. These terms or statutes are quite similar as they both let people know which stage a property is when it comes to a purchase agreement.
For example, a property that has an accepted offer from a buyer but the sale has not been finalized yet can refer to both a pending or under contract status.
However, these two statuses can mean different things depending on the location where the house is sold. Let’s take a look at a few details regarding these two popular contract statuses.
A Pending Contract Status
During the pending phase, even though the sale has not been finalized, the property has been removed from the market. The buyer will examine the property and ensure they have enough funds to purchase the house.
If there are any other tasks that need to happen before the house is sold, they will be performed during the pending stage of the sale. In certain locations, the pending status informs all parties that the contingencies listed in a contract have been addressed. It is considered to be the final stage of the sale, and all parties are just waiting for the deal to be closed.
An Under Contract Status
When it comes to the “under contract” status, the offer provided by the buyer to purchase the house has been accepted by the seller. There will also be a signed contract using a swift electronic signature if it’s a digital document as evidence that the buyer and seller are in a purchase agreement. At this time in the sales process, the house will be taken off the market even though the transaction has not been finalized.
During this phase, the buyer will make sure to inspect the house properly and find funding to pay for it.
How Long can a Home Sale be Active Under Contract?
The time that the sale of a house can sit in the “under contract” phase depends on many factors. Some of the components that delay the progress of a home purchase can be the terms listed in the property agreement or the laws in the country in which the house is sold.
Generally speaking, though, the average time that it takes to to sell a house can be between 30 – 60 days.
Does a ‘Under Contract’ House Mean It’s Already Sold?
The short answer is no. The status of “under contract” in real estate means that there is an agreement between a buyer and seller on the sale of a house. The “under contract” status also informs people that the sales deal has not been finalized due to outstanding contingencies.
Manage Real Estate Contracts with Titan CLM
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Get Ready to Track CLM Activities with Titan and Salesforce
Thanks for reading our article to get an “under contract” meaning in the real estate industry. We also covered other important topics in this field, like contract contingencies.
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Use Titan CLM to streamline contract management processes and easily view all changes in Salesforce or via email. We provide complete end-to-end security for your documents as our software supports 2FA methods and have a host of document-generation tools that integrate with Salesforce in real-time.
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Frequently Asked Questions
What does “under contract” mean when buying a house?
It means that the house is currently in a sales process, and the seller has accepted an offer from a buyer. There will usually be an agreement drafted and signed by the buyer and seller to manage the sales process.
What does under contract option pending mean?
This term in real estate means that a house is in a sales process. The house has reached the stage where the buyer’s offer for the house has been accepted by the seller.
This purchase agreement will be described in a contract that is signed by both parties. This term also informs everyone that the sale of the house has not been finalized and that there are still contingencies that need to be addressed.
How often does a house “under contract” fall through?
Unfortunately, there is no clear answer. Each failed sales agreement will depend on unique factors to that deal.
Some common factors that could add to your house purchase failure include the market conditions or the terms listed in the contract being unrealistic to fulfill.
However, it’s important to note that there is never a perfect process or situation, and there is always a chance of a purchase agreement falling through in the “under contract” phase.
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