What Does "Under Contract" Mean?

Melanie 

Ortiz Reyes

Content Specialist

When browsing through real estate listings, you might come across the term "under contract" next to a property. This phrase often raises questions about the status of the home and whether it is still available for purchase. It might even deter you from inquiring about the property. But does "under contract" also mean "off market"?

What Does "Under Contract" Mean?
 

When a property is listed as "under contract," it means that a buyer and a seller have agreed to the terms and conditions of a purchase agreement. This agreement outlines the specifics of the transaction, including the purchase price, closing date, and any contingencies or conditions that must be met for the sale to proceed. Essentially, when a home is under contract, it signifies that the seller has accepted an offer from a potential buyer, and both parties are now legally bound by the terms of the contract.

The Process

1. Showings - The journey towards a property being under contract begins when a homeowner decides to sell it. Once listed, the property is actively marketed, and potential buyers schedule showings to view the home.
    
2. Negotiations - After viewing the property, a buyer may decide to make an offer, typically through their real estate agent. The offer includes the proposed purchase price, any contingencies, and a timeframe for the seller to respond.
    
3. Acceptance of Offer - The seller has three options when they receive an offer: accept it as-is, reject it outright, or counteroffer with modified terms. If both parties agree to the terms, the offer becomes a legally binding contract. This is when the property gets marked as "under contract." 

What Happens When a Property Is "Under Contract"?

• Inspections and Contingencies - The contract often includes contingencies, such as inspections, financing, or the sale of the buyer's current home. These contingencies protect both parties and allow the buyer to back out of the contract if certain conditions aren't met.
   
• Withdrawal from the Market - While under contract, the seller usually ceases actively marketing the property. However, this does not mean the property is entirely off the market. In some cases, sellers and their agents may consider accepting backup offers while a property is under contract. This allows for a potential replacement buyer should the current contract fall through.
   
• Earnest Money - The buyer typically provides earnest money, a deposit that shows their commitment to the purchase. If the buyer backs out without a valid reason, the seller may keep the earnest money.
   
• Appraisal and Financing - The buyer's lender will request an appraisal to determine the property's value. Additionally, the buyer will work on securing financing based on the agreed-upon terms.
   
• Title Search and Closing Preparation - The title company conducts a title search to make sure there are no issues with the property's ownership. Meanwhile, both parties prepare for the closing, where ownership officially transfers from the seller to the buyer.

Is the Home Off the Market When it's Under Contract?
 

The answer to this question is a bit nuanced. Although a home under contract is not actively marketed, it is not entirely off the market until the sale is finalized. The listing status is often changed to "Pending" or "Under Contract," which indicates to other potential buyers and real estate agents that the property is spoken for. If a property falls out of the contract, it will return to an active listing status, and interested parties can schedule showings again.

Some properties might include a "Contingent" label to signal that the contract is not yet finalized due to outstanding contingencies. These are the most common:

• Inspection Contingencies - Upon discovering significant issues during the inspection process, the buyer may request repairs or negotiate a price reduction. If the parties cannot reach an agreement, the buyer can terminate the contract, making the property available again.
   
• Financing Contingencies - If the buyer fails to secure financing within the agreed-upon timeline and terminates the contract as a result, the home may return to the active market.

"Under Contract" is a significant milestone that signifies a buyer and seller have reached an agreement on the sale of a property and are progressing towards closing. While it doesn't mean the home is completely off the market, it does indicate that the property is effectively reserved for the buyer while the necessary steps are taken to complete the transaction. So, don't get too discouraged when you see the words "under contract" next to a listing you really like. Inquire about it; you never know if the deal will fall through.

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