When you're exploring real estate listings, you'll often come across the phrase "under contract." But what does it really mean, and how does it impact your home-buying journey? In real estate, "under contract" indicates that a seller has accepted an offer from a buyer, but the deal isn’t finalized yet.
There are still contingencies to clear, such as inspections, appraisals, and securing financing. It's an essential part of the home buying process, and knowing the details can help you navigate potential opportunities.
What Does Under Contract Mean?
In real estate, "under contract" refers to a situation where a seller has agreed to a buyer's offer, but the sale hasn’t been completed. During this period, the property is essentially on hold while both parties work through various steps like home inspections, appraisals, and securing financing.
The deal can still fall through if certain conditions aren’t met, such as if the buyer’s financing doesn’t come through or the home inspection reveals issues that lead the buyer to walk away.
For example, if a home is listed as "under contract," this means that while a sale agreement is in place, the home isn’t off the market entirely until the deal is closed. If the contingencies are not met, the property may go back on the market.
Learn more:
The Ultimate Guide to the Home Buying Process
What’s the Difference Between Pending and Under Contract?
Though “pending” and “under contract” seem similar, they refer to different stages of the sale. When a home is listed as "under contract," the seller has accepted an offer, but the sale is contingent on certain conditions being met, such as the home inspection or financing approval. On the other hand, "pending" means all the conditions have been satisfied, and the sale is in its final stages, typically just awaiting closing.
Let’s say you’ve placed an offer on a house, and the seller accepts it. During the inspection, some issues arise with the roof, and now you’re negotiating repairs or even reconsidering your offer. That’s an "under contract" situation. If all goes smoothly, and you agree on the repairs, it moves to "pending," where the deal is essentially locked in.
Can a Seller Accept Another Offer While Under Contract?
Once a house is under contract, the seller cannot legally accept another offer for the property. However, that doesn’t mean other buyers are out of the running completely. Sellers can still accept backup offers, which would only come into play if the current deal falls through. This means that while the primary buyer works through the inspection and financing, another interested buyer could submit a backup offer to jump in if the first buyer backs out.
Imagine you’ve made an offer on a home that’s under contract, but the deal falls apart because the buyer couldn’t secure financing. As someone who submitted a backup offer, you’re now next in line to potentially buy the home.
Can You Make an Offer on a House That Is Active Under Contract?
Yes, you can still submit an offer on a home that is listed as "active under contract," but your offer will be treated as a backup. In most cases, sellers keep accepting offers to have a contingency plan in case the first buyer’s financing falls through or the inspection brings up deal-breaking issues. It’s a good strategy if you’re really interested in a property but weren’t the first to make an offer.
Tips for Buyers Navigating Under Contract Properties
- Stay in the Loop: Always ask your real estate agent if the seller is accepting backup offers. Even if a home is under contract, things can change quickly.
- Timing is Key: If you're serious about a property, don't hesitate to act fast—either by submitting an offer before it goes under contract or by being prepared with a backup offer.
- Know the Contingencies: If you’re the one under contract, ensure you’re fully aware of all contingencies and work through them promptly to avoid any deal breakers.
What Happens If the Contract Is Canceled?
When a real estate contract is canceled, it’s typically due to unmet contingencies such as failed inspections or financing falling through. If the buyer cancels within the contingency period, they may be entitled to a refund of their earnest money deposit.
However, if the buyer cancels after this period or without a valid reason, they could lose their deposit or face legal consequences. The property will then return to the market for other buyers.
How Often Does a House Under Contract Fall Through?
Approximately 5% to 10% of houses under contract fall through due to various issues, including financing complications, failed home inspections, or the buyer’s inability to sell their existing home. While it's not common, it happens often enough that backup offers and flexibility are a good strategy for sellers and buyers.
Should I Put a Backup Offer on a House Under Contract?
Submitting a backup offer can be a smart move, especially if you're highly interested in a property. If the current deal falls through, your offer will automatically be considered, giving you a chance to purchase the home without it going back on the market. Backup offers show you’re serious but don’t lock you into the transaction until the first contract is canceled, making it a low-risk option.
If you're ready to start your home buying journey or want more insight into the real estate process, reach out to the Home Shift team. We’re here to help you navigate every step of the process and secure your dream home.
