What Is Under Contract in Real Estate

Real estate transactions are multifaceted and can be complex. Understanding the legal aspects of real estate sales and purchases is critical to ensure the process goes smoothly. “Under contract” is crucial in real estate. This article explains what it means and all you should know.

What Does “Under Contract” Mean?

When a property is ‘under contract’, it means the seller has accepted an offer made by a buyer. But the sale isn’t made yet. The property is unavailable for sale to other potential buyers during the ‘under contract’ period. When someone accepts an offer but before the sale, it’s called the “under contract” phase.

What Happens During the “Under Contract” Phase?

During the “under contract” phase, the buyer has a set amount of time to complete the necessary inspections and secure financing. If the buyer is satisfied with the inspection results and can secure financing, the sale will proceed to close. If the buyer is unhappy with the inspection or can’t get financing, they can cancel the deal.

Can the Seller Back Out of the Deal?

Once a seller accepts a buyer’s offer, they usually can’t back out, but sometimes they can cancel. The seller can cancel the deal if the buyer breaks the contract or fails to finance.

What Happens at Closing?

Closing is the final stage of the real estate transaction. When closing, the buyer pays, and the seller transfers property ownership for an agreed price. Closing typically takes place at a title company or an attorney’s office.

What Happens if the Sale Falls Through?

If the sale falls through during the “under contract” phase, the property will return to the market, and the seller can accept new offers. The buyer may be able to recover their earnest money deposit, which is the money they put down when making an offer on the property.

What does ‘under contract’ means for you buying a house?

Understanding the ‘under contract’ concept is crucial when buying a house. When both parties sign a legal contract, ‘under contract’ means the seller accepted the buyer’s offer. Usually, the property isn’t for sale at this time.

Buyers must finish their due diligence within a set timeframe, including home inspection and securing finances. If the buyer finds problems, they can talk to the seller to fix them or cancel the contract after due diligence, sale proceeds, and property sold to the buyer.

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How contingencies affect a house that’s under contract

When a house is under contract, contingencies can significantly impact the sale outcome. Before the sale, certain conditions called contingencies need to be fulfilled. If a contingency is not met, the buyer can cancel the contract without penalty. Here are some common contingencies that can affect a house under contract:

Financing Contingency:

This contingency states that the buyer must secure financing to purchase the property. If the buyer cannot secure financing, they may withdraw from the contract without penalty.

Appraisal Contingency:

An appraisal contingency states that the property must be appraised at or above the sale price. If the house is appraised lower than the sale price, the buyer can renegotiate or cancel the contract.

Mortgage Financing Contingencies:

This contingency states that the buyer must be approved for a mortgage loan to purchase the property. Buyer can withdraw from the contract without penalty if the mortgage loan is not approved.

Home Sale Contingencies:

Buyers often use this contingency when they must sell their current home before buying a new one. The contract depends on the buyer selling their current property before buying the new one.

Home Inspection:

A home inspection contingency allows the buyer to have the property inspected by a professional home inspector. The buyer may negotiate repairs or back out of the contract if issues are found during the inspection.

In summary, contingencies can significantly affect the sale outcome for a house under contract. Both buyers and sellers should know the contract’s contingencies and how they can affect the sale.

Active Under Contract

Active under contract refers to the status of a property currently under contract but has yet to close. When a property is “active under a contract,” the seller accepts an offer and both parties sign. Before finalizing the sale, some contingencies, such as home inspection, appraisal, or financing approval, still need to be met.

During this time, the property remains active under a contract, and other potential buyers may still submit backup offers in case the current contract falls through. Once all contingencies are met, and the sale is complete, the property’s status will change from active under contract to sell.

Under Contract vs. Sale Pending

Under contract and sale pending are two terms commonly used in the real estate industry, and they both refer to a property with an accepted offer. There is a slight difference between the two terms:

When a seller accepts a buyer’s offer and signs a purchase agreement, it’s called being “under contract“. However, certain contingencies must be fulfilled before concluding the sale. The property is still considered active on the market, and other potential buyers may submit backup offers.

On the other hand, a sale pending means that all contingencies have been met, and the sale is almost complete. The only remaining step is typically the closing, where the final paperwork is signed and the funds are transferred. Once the property is sale pending, it is no longer considered active on the market, and backup offers are no longer accepted.

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In summary, under contract means that the property has an accepted offer, but the sale is still being determined, while sale pending means that the sale is almost complete and the property is no longer active for sale.

What do real estate agents mean by under contract and pending sales?

In real estate, “under contract” and “pending sales” are two terms real estate agents use to indicate the status of a property.

“Under contract” means that a seller has accepted a buyer’s offer and signed a contract. However, the sale is still being determined, as contingencies may need to be met before closing. During the “due diligence” phase, the buyer and seller inspect and review the property to confirm contract terms.

Once all contingencies have been satisfied, the sale can move to the “pending” stage. “Pending sale” means that the property is in the final stages of the sale and it is only waiting for the closing process to complete. During this phase, the buyer and seller prepare to transfer property ownership, and the necessary paperwork is completed.

‘Under contract’ means the buyer has offered and the seller has accepted, but the sale still needs to be finalized. In contrast, “pending sale” means that the property is in the final stages of the sale and it is only waiting for the closing process to complete.

Basics of under contract

Under contract is a term used in the real estate industry to describe a property with an accepted buyer offer, and both parties have signed a purchase agreement. If a property is under contract, the seller and buyer have settled on a price and terms for sale.

During this time, contingencies typically need to be met for the sale can be finalized, such as a home inspection, appraisal, or financing approval. These contingencies protect both the buyer and seller and ensure the sale proceeds smoothly.

Once all contingencies are met, the sale can proceed to close, where the final paperwork is signed and the funds are transferred. At this point, the property is considered sold, and the status changes from under contract to sell.

It’s important to note that while a property is under contract, it is still technically active on the market, and other potential buyers may submit backup offers. However, the accepted offer takes priority, and if all contingencies are met, the sale will proceed with the accepted offer.

How often do contracts fall through?

Contracts falling through in real estate transactions are common. The likelihood of contract cancellations varies based on location, market conditions, and contract terms. According to a report by the National Association of Realtors, in 2020, about 4% of home sales contracts fell through before closing.

Several reasons may cause a contract to fall through, including financing issues, appraisal problems, title issues, and unexpected repairs discovered during inspections. Buyers and sellers can also cancel contracts for personal reasons or disagreements over the sale terms.

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Working with a reliable agent and attorney is crucial to minimize contract cancellations by ensuring prompt and accurate inspections, appraisals, and paperwork. Understanding all contract terms, especially contingencies that permit cancellation or renegotiation, is also essential.

What to do if a house you love is under contract?

If a house you love is under contract, don’t worry. You can still take some steps.:

  1. Ask your agent to keep an eye on the property: Sometimes, a deal falls through, and a property under the contract becomes available again. Your agent can monitor the property and let you know if it becomes available again.
  2. Look for similar properties: If you love a particular house, similar properties in the area may meet your needs. Ask your agent to show you comparable properties currently on the market.
  3. Expand your search area: If you need help finding what you want in one area, consider looking in nearby places. A neighboring town or city might have similar properties at a more affordable price.
  4. Be patient: The real estate market is constantly changing, and new properties always come on the market. Keep going if you have yet to find what you’re looking for! Just be patient and keep searching. The right property may be just around the corner.

When buying a home, find one that fits your needs and budget since it’s a big investment. Don’t settle for a property just because you’re in a rush or your dream home is under contract. Don’t rush. Collaborate with your agent to discover your ideal home.

Can a buyer back out once they’re under contract?

Buyers can usually cancel a real estate contract, but it depends on the terms and contingencies mentioned in the agreement.

If a buyer can’t get financing, they can cancel the contract based on a financing contingency clause. Similarly, a home inspection contingency may allow the buyer to cancel the sale or negotiate repairs or credits if significant issues are found during the inspection.

If the buyer wants to cancel the contract, they must discuss options and consequences with the agent and lawyer. In some cases, backing out of a contract without a valid reason may result in losing earnest money or other legal consequences.

Reading and understanding all real estate contract terms is important to avoid cancellation risk.

What happens if you breach a real estate contract?

Breaking a real estate contract can have serious legal consequences. Understand the possible outcomes before taking any action.

If a party breaches a real estate contract, the other party may be entitled to specific performance or monetary damages. Specific performance is a legal remedy that requires the breaching party to fulfill the terms of the contract. For example, if a seller breaches a contract by refusing to close the sale, the buyer may be entitled to specific performance, forcing the seller to complete the sale as agreed.

If one party breaches the contract, the other party may get money for any losses or expenses incurred. This could include finding a new property or paying additional legal fees.

In addition to these remedies, breaching a real estate contract may also result in the loss of earnest money or other deposits and damage the breaching party’s reputation in the real estate community.

If you think the other party broke the agreement or you’re planning to, talk to a real estate lawyer. It’s crucial. An attorney can help you understand your options and guide you on the best action to protect your interests.


In conclusion, “under contract” is a critical term in real estate transactions. It’s the time from offer acceptance to sale completion. During this phase, the buyer will complete inspections and secure financing, and the seller will prepare for closing. Understanding the “under contract” phase ensures a smooth real estate transaction.

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