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What Does ‘Under Contract’ Mean in Real Estate?

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You’ve found it – the perfect home. From the molding to the skylights, it’s everything you’ve ever wanted. Just as you’re getting ready to put in an offer, the listing changes. Now it’s listed as “under contract.”

Is this the end of your real estate romance, or is there a chance you and your dream home can still be together? Like the best romantic dramas, it won’t be easy. But just because a house is “under contract” doesn’t mean all hope is lost.

The trick is to understand what “under contract” means and how you could still get the home of your dreams if you play your cards right and fate works in your favor.

What Does “Under Contract” Mean?

“Under contract” means a seller has accepted a purchase contract (sometimes referred to as an offer, purchase agreement or real estate contract) from a buyer and can’t accept any competing offers. It also means that the buyer has made an earnest money deposit into an escrow account, showing the seller that they’re serious.

However, accepting an offer doesn’t mean a sale is guaranteed. 

Unless it’s an all-cash deal, before the buyer and seller can close on the home, the buyer will go through the loan approval process, which includes the underwriting process, with their lender. 

The purchase contract will include the contingencies (aka conditions) the buyer or seller must meet before the home sale can go through. Some of the most common contingencies include:

  • Loan approval contingency: The deal can be canceled if the buyer’s mortgage application isn’t approved. 
  • Home inspection contingency: The buyer reserves the right to schedule a home inspection, usually within 7 – 10 days of the offer being accepted. If the home inspection reveals a problem that will cost more than a certain amount of money to repair (usually a set amount or a percentage that’s usually around 1% – 2% of the sale price), the buyer can back out of the contract.
  • Appraisal contingency: The lender will request a professional appraisal of the home’s value. If the home’s appraised value is less than the loan amount, the lender may refuse to approve the loan. When this happens, the buyer and seller may need to renegotiate, or the buyer may back out of the deal.
  • Home sale contingency: If the buyer is trying to sell their current home, they may have a contingency in place that lets them back out of the deal if they can’t sell their home before buying the new home.

If one or more contingencies aren’t met, the buyer or seller may withdraw from the purchase contract without fear of penalty, and the seller can accept new offers.

Can I Make an Offer on a House That Is ‘Under Contract’?

A seller cannot accept another offer as long as the home is under contract with another buyer, but you can submit a backup offer the seller can consider if the deal falls through. 

Just keep in mind that the seller doesn’t have to accept your backup offer.

If there’s a lot of demand for the home, the seller can accept multiple backup offers to consider if their current contract falls through. 

Of course, there’s no guarantee that the active offer won’t go through. 

If you spend weeks waiting for your dream home to come back on the market, you might lose out on finding another home that’s also right for you. Before submitting a backup offer, talk with your real estate agent and ask for their honest opinion before you commit to a home that may not work out.

What’s the Difference Between ‘Under Contract’ and ‘Sale Pending’?

In addition to “under contract,” you may see homes listed as “sale pending.” While “under contract” means contingencies still need to be met, “sale pending” means the contingencies have been met. At this point, the only obstacles to the sale being completed are the normal twists and turns of the mortgage approval and home sale process.

Once the status of the deal moves to “pending home sale,” it means the sale is closer to becoming a completed real estate deal.

What Happens if the Deal Falls Through?

If the original deal falls through – before you break out into your happy dance – it would be a good idea to find out why the deal fell through. 

If the deal fell through because the buyer couldn’t secure financing or sell their home, you might be able to swoop in and buy your dream home. On the other hand, if a home inspection revealed a serious problem or the home appraisal came in low, you may need to exercise caution and rethink how much you want the home.

It’s Not Over… Until It’s Over

If your dream home suddenly reappears on the market and your backup offer is accepted: Congratulations, you’ve beaten the odds and reunited with the home of your dreams!

If your story ends differently, remember, there are other options out there. Waiting too long for the perfect home could keep you from discovering the right one for you.

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The Short Version

  • A seller cannot accept another offer as long as the home is under contract, but you can submit a backup offer the seller can consider if the deal falls through
  • “Under contract” means contingencies still need to be met; “sale pending” means the contingencies have been met
  • If one or more contingencies aren’t met, the buyer or seller may withdraw from the purchase contract without fear of penalty, and the seller can accept new offers
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