When searching for a new home, “under contract” might catch your eye. But what exactly does it mean, and how does it impact your chances of buying that dream property? Understanding the implications of a home being “under contract” is crucial in navigating the real estate market.
What Does Under Contract Mean?
When buying or selling a home, the term “under contract” means the seller has accepted an offer from a buyer, but the deal isn’t finalized. Both parties are legally bound by the agreement, which includes contingencies that must be met for the sale to proceed. Common contingencies include securing financing, passing inspections, and meeting appraisal requirements. The deal could be renegotiated or canceled if any contingency isn’t satisfied.
A property under contract is off the market, but the sale isn’t guaranteed. This stage is critical as both buyer and seller must fulfill their obligations to move toward closing.
Common Contingencies in Real Estate Contracts
Several common contingencies might be attached to a real estate contract, each of which needs to be cleared before the sale can proceed:
1. Financing Contingency:
Most buyers require a mortgage to purchase a home. A financing contingency ensures the sale can only proceed if the buyer secures adequate financing. If the buyer can’t get the mortgage, the deal falls through.
2. Appraisal Contingency:
Lenders will not provide more money than a property’s appraised value. An appraisal contingency allows the buyer to renegotiate or cancel the contract if the appraisal is lower than the purchase price.
3. Home Inspection Contingency:
This contingency allows the buyer to have the home inspected by a professional. If significant issues are found, the buyer can request repairs, renegotiate the price, or even walk away from the deal.
4. Home Sale Contingency:
For buyers who need to sell their current home before purchasing a new one, this contingency provides a specific time frame for selling their existing property. If they can’t sell their home in time, they can cancel the purchase without penalty.
Active Under Contract vs. Pending
You may also encounter terms like “active under contract” and “pending” during your home search. Here’s how they differ:
Active Under Contract: The seller has accepted an offer but is still open to receiving backup offers. This could be because the seller is cautious or uncertain about the current buyer’s ability to close the deal.
Pending: This means the home is under contract, and all contingencies have been satisfied. The deal is close to final at this stage, and the seller is unlikely to entertain backup offers.
What Does Active Under Contract Mean?
“Active under contract” means a property is under contract, but the seller still accepts backup offers. This suggests the seller may be cautious, possibly because the deal is uncertain. This status is common in competitive markets when buyers might back out due to financing or inspection issues. For buyers, this means there’s still a chance to make an offer, though it would be as a backup. Sellers use this status to have other interested buyers ready if the original deal falls through.
What Does Under Contract Mean on Zillow?
On Zillow, “under contract” means the seller has accepted a buyer’s offer, but the sale isn’t finalized yet. The property is in a holding phase while inspections, appraisals, and financing are completed. Although disappointing for buyers, deals can fall through so the property might become available again. If you’re interested, consider making a backup offer to be next in line if the current deal fails.
Can a Seller Accept Another Offer While Under Contract?
No, once a seller’s property is under contract, they can’t accept another offer. They are legally bound to the current agreement and must work towards closing with the buyer. However, the seller can accept backup offers, which only become active if the original deal falls through.
How Long Can a House Be Under Contract?
Typically, a house is under contract for 30 to 60 days. This period allows time for inspections, appraisals, and securing financing. The timeline depends on factors like loan approval speed and resolving any contingencies. If issues arise, the process may take longer, but if everything goes smoothly, closing could happen sooner.
Can a House Under Contract Be Sold to Someone Else?
No, a house under contract can’t be sold to someone else. The seller is legally obligated to sell to the buyer in the contract. Selling to another buyer would breach the contract, leading to legal consequences. The house can only be sold to someone else if the original contract falls through.
Should You Consider Putting in a Backup Offer?
If your dream home is under contract, you might wonder if it’s worth putting in a backup offer. While the chances of the primary deal falling through might seem slim, it does happen. Around 7% of real estate contracts are terminated, often due to financing, appraisal, or inspection issues. If you’re serious about the property, a strong backup offer could position you next in line should the current deal fall apart.
How to Put a Property Under Contract
To put a property under contract, follow these steps:
- Negotiate Terms: The buyer makes an offer. The seller can accept, reject, or counteroffer. Both negotiate until they agree on the terms.
- Write the Contract: Once terms are agreed upon, a formal contract detailing the purchase price, contingencies, and deadlines is written.
- Sign the Contract: Both buyer and seller sign the contract, legally binding them to the terms.
- Meet Contingencies: The buyer meets contingencies like securing a loan or completing inspections. The seller may need to complete repairs.
- Proceed to Closing: Once all contingencies are met, the sale moves to closing, where the property officially changes hands.
Tips for Buyers and Sellers During the “Under Contract” Phase
Navigating the “under contract” phase can be stressful. Here are tips for both buyers and sellers to manage this period effectively:
Tips for Buyers
- Finalize your financing, choose a lender, and submit the necessary documents. Delays in securing financing can jeopardize the deal.
- Schedule a home inspection as soon as possible. Attend if you can, and be ready to negotiate repairs if issues arise.
- Keep in close contact with your real estate agent to ensure all developments are handled promptly.
Tips for Sellers
- Keep your home in good condition. Continue with regular maintenance and address any repairs.
- Make agreed-upon repairs, provide inspection access, and ensure all paperwork is ready for closing.
- Stay in close contact with your real estate agent to handle any buyer requests or issues promptly.
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