What does Under Contract Mean?
Under contract or contingent in real estate refers to a seller accepting a buyer’s offer, but the sale is not yet complete. Before a transaction can be finalized, there are typically a few contingencies or conditions that must be met, such as the buyer securing financing or the property passing a home inspection. The property is regarded as being under contract up until all of these contingencies are satisfied and the sale is finalized.
Contingencies in real estate contracts
Financing contingency is a typical contingency that is frequently mentioned in real estate contracts. This means that in order to finalize the purchase of the property, the buyer needs to obtain a mortgage or other financing. For many home buyers, this can be a major obstacle, especially if they have bad credit or can’t afford a sizable down payment. The contract may be terminated and the property put back on the market if the buyer is unable to arrange financing within a specific time period.
The inspection contingency is another common contingency in real estate contracts. This indicates that before the transaction is closed, the buyer has the right to request a home inspection of the property. For home buyers, this can be a crucial stage because it enables them to spot any potential problems with the property that may need to be fixed before the sale is finalized. If the inspection shows substantial faults with the property, the buyer may be entitled to negotiate with the seller to get those problems resolved prior to closing or, if they are unable to reach an agreement, to terminate the contract.
If the buyer is taking out a mortgage to buy a home, a home appraisal is required. To establish whether the home’s value supports the sales price, a licensed professional appraiser compares the qualities of the home to those of comparable properties in adjacent neighborhoods. If so, the appraisal contingency is satisfied. If the appraised value is low, the buyer has three options: pay the difference, request a price reduction from the seller, or break the contract.
A home sale contingency can help buyers who are looking to buy a new house while simultaneously selling their old one. Although it’s a smart move for buyers who need more time to sell their house, sellers may reject an offer with this condition if they need to close the deal quickly and don’t want to take the chance that your present house won’t sell and they’ll have to remarket it.
Being under contract does not guarantee that the sale will close, which is another crucial point to remember. The contract may be terminated and the property will be placed back on the market if the buyer is unable to satisfy the contingencies or decides to back out of the deal. However, the property will be transferred to the buyer and the contract will be deemed fulfilled if all of the conditions are satisfied and the sale is completed.
Potential pitfalls of being under contract
One potential pitfall for both buyers and sellers is the issue of “contingent” listings. When a property is listed as “contingent,” it means the seller has accepted a buyer’s offer, but the transaction has not yet closed. The home may still be offered for sale and may appear to be available, which might be misleading for home buyers. If the seller is already in a contract with another buyer, a buyer’s offer on a contingent property might not be approved. If you are buying a home and come upon a property listed as contingent, before placing an offer on that property contact your real estate agent for clarity.
Sellers should also be aware of the potential pitfalls of being under contract. While it’s certainly an exciting time, it’s important not to get too ahead of yourself and to remember that the sale is not yet final. This means that you should avoid making any major purchases or commitments that could be affected by the sale of the property until the deal is completed. Additionally, it’s important to remember that the buyer may still have the right to back out of the deal if certain contingencies are not met, so it’s important to be prepared for that possibility as well.
Tips for Buyers and Sellers
For buyers, being under contract may be both thrilling and worrisome. On one hand, it indicates that you have discovered a home that you adore and that the seller has accepted your offer. However, a number of stages still need to be completed before the sale can be considered complete, and there is always a chance that something may go wrong and the deal could fall through. You should be prepared for this scenario and have a fallback strategy in place in case the transaction doesn’t go through.
For sellers, being under contract can also be a nerve-wracking experience as well. You’ve accepted an offer from a buyer and are expecting to close the sale and move on with your life, but there’s always the chance that something could go wrong and the deal could fall through. It’s important for sellers to be aware of this possibility and to be ready in case the deal doesn’t go through as expected.
Overall, being under contract in real estate can be a complex and sometimes stressful process. However, with careful planning and due diligence, both buyers and sellers can navigate the home buying process and home selling process successfully and reach a successful sale. It’s important to work with a knowledgeable and experienced real estate agent who can help you understand the process and guide you through the contingencies and requirements of being under contract. With the right team in place, you can confidently navigate the process and achieve a successful sale.