You’ve found a prospective buyer for your home and they’ve made an offer. Now what? The next step is to go under contract. But what does that term “under contract” mean in real estate, exactly?
Here’s a quick rundown of the process around real estate contracts and what you can expect next for your pending sale before you can call it a done deal.
“Under Contract” Explained
Once an offer for your house has been accepted, the next step is to agree to the specific terms of the real estate transaction. This means both parties must ink a legally-binding contract, which contains every single detail of the transaction process required to 100% close the home sale.
The contract will outline things like the purchase price (the one thing definitely stated in the initial offer), any repairs that need to be made after a home inspection, who is responsible for paying closing costs, and the timeline for the closing date. If the contract stipulates that the seller and/or buyer is on the hook to complete some activity for the deal to proceed, then these are called contingencies.
The terms “contingent” and “pending” often appear adjacent to “under contract” when discussing property sales. (Read more about contingent vs pending). Basically, contingent means a sale has been agreed with the note that some explicitly listed actions must be undertaken to fully close the deal. Pending means there are no contingencies, or every home sale contingency has successfully been completed.
So, the general progression of sale actions looks like this.
Offer submitted > offer accepted > execute contract (house is under contract) > close sale.
When the house is under contract, the sale can be considered contingent or pending. Those are essentially sub-statuses of the general “under contract” status. (There is some debate if pending should be treated as a separate status from under contract; however, we have often seen it be included under the umbrella of “under contract” so you should always double check with a real estate agent if you have any uncertainty).
What Happens Next
Once you’re under contract, there are a few specific things that need to happen in order for the sale to go through. First, the buyer's financing will need to be secured from a mortgage broker, assuming they are not paying all cash. The loan process can take anywhere from a few weeks to a few months, so it’s important to be patient. Next, an inspection of the property will be conducted and any necessary repairs will be made, if this has not already been completed and acknowledged. As mentioned, there a host of contingencies that may need to be cleared (financing contingency, home inspection contingency, and appraisal contingency are the primary three).
Finally, all of the actual paperwork for the sale will need to be completed and signed by both parties.
What Else Do I Need to Know About Being “Under Contract?”
When a house is under contract, the possibility always remains that the deal falls apart. So a seller should not start spending the money from the sale pending just yet!
In fact, a common practice for real estate listings is for a seller's agent to continue to show the property to other prospective buyers even while the house is under contract. This usually happens when there are existing contingencies but it may also occur even when the sale is pending. A diligent real estate agent will continue to work for the homeowner on all fronts; negotiating a backup offer for a property while navigating the agreed-upon sale to the finish line. Make sure to discuss that strategy up front with your real estate agent when you’re deciding on representation; at TrueParity terms are always objectively clarified before a listing agreement is signed.
Summary
The process of selling a home can be nerve-wracking, but once you find a buyer and go under contract, it’s a more straightforward process from there. A deal is considered under contract once an offer has been accepted and an actual contract has been executed, but the deal has not yet closed. A sale that is labeled contingent or pending can both imply that the deal is under contract. Once your home sale is under contract, remember to stay patient and follow through with all of the necessary steps and you’ll be closing in no time. You can always consult with an experienced real estate agent or real estate attorney at any point during the selling or home buying process.
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