What Does Under Contract Mean in Real Estate? A Guide to the Home Buying Process

When a property is listed as "under contract," it means the seller has accepted an offer from a buyer, and both parties have signed a legally binding purchase agreement. However, this does not guarantee the sale is final. The property enters a critical contingency period where the buyer must complete inspections, secure financing, and meet other agreed-upon conditions before the deal can officially close. Understanding this phase is crucial for both buyers and sellers navigating a real estate transaction.

The purchase agreement is the cornerstone of an "under contract" status. This legally binding contract outlines the sale price, closing date, and, most importantly, the contingencies—conditions that must be met for the sale to proceed. Common contingencies include the home inspection, appraisal, and financing. During this period, the property is typically removed from the active market, though it is not yet sold. Based on our experience assessment, a property can be under contract for 30 to 60 days on average, depending on the complexity of the deal and the terms negotiated.

What Happens During the Contingency Period?

The contingency period is a due diligence window for the buyer. Key activities include:

• Home Inspection: A professional inspector assesses the property's condition. If significant issues are found, the buyer can request repairs, a credit, or withdraw from the contract without penalty.
• Appraisal: The buyer's lender orders an appraisal to ensure the property's value matches the loan amount. If the appraisal comes in low, the seller may need to lower the price, or the buyer may need to cover the difference.
• Financing Contingency: The buyer formally applies for a mortgage. If their loan is denied, this contingency allows them to back out and reclaim their earnest money deposit—a good-faith sum submitted with the offer.

Can a Buyer Back Out of a Contract?

A buyer can back out of a contract without losing their earnest money deposit only if they do so based on an unmet contingency outlined in the purchase agreement. For example, if the inspection reveals a faulty foundation or the loan is not approved, the buyer can exit the deal. However, if a buyer simply has a change of heart and no contingencies protect them, they risk forfeiting their deposit.

What Are the Risks for Sellers?

For sellers, a property under contract is not a guaranteed sale. The primary risk is the deal falling through during the contingency period, a situation often referred to as the contract "falling through." This can cause the property to go "back on market" (BOM), which may lead some future buyers to wonder if there are underlying issues with the home. Sellers often mitigate this risk by accepting backup offers from other interested buyers.

What is the Difference Between "Under Contract" and "Pending"?

While often used interchangeably, there can be a subtle difference. "Under contract" usually indicates the home is in the active contingency period. "Pending" often signals that all contingencies have been satisfied, and the sale is simply awaiting closing. The specific meaning can vary by listing service, but both statuses mean the seller is highly unlikely to entertain new offers.

In summary, the key to navigating a property that is under contract is to understand the contingencies. For buyers, this period is for verification and protection. For sellers, it requires patience and preparedness for potential re-listing. Always review the purchase agreement thoroughly and work with a real estate professional to ensure your interests are protected throughout this critical phase of the transaction.