Everything You Need to Know About Being “Under Contract”
If you are on the hunt for a new home, you know that finding the perfect house is a challenge, particularly in a competitive market. It’s challenging to find a house that has all the key features you’re looking for, let alone one that fits within your budget. You might find the ideal home at the right price point, but it is considered “under contract” on the listing. You may wonder what it means when a house is under contract. Can you purchase a home if it is under contract?
In this article, we will cover all you need to know about what it means to be under contract in real estate and what you can do if you are put in a situation where your dream home falls under this category.
What Does it Mean to be Under Contract in Real Estate?
When a home is under contract, this means that the seller has accepted the offer on their property for sale, but the deal isn’t considered final. The sale typically takes anywhere from 4 to 8 weeks to close, depending on how quickly the remaining contingencies are resolved. In this phase, contingencies are conditions that must be fulfilled before the transaction can proceed. Let’s examine some common contingencies that may arise during this phase of the closing process.
Funding Contingencies
One of the most common contingencies in real estate is the funding contingency. This means that the prospective buyer must secure a loan, typically a mortgage, before the sale can proceed. Even if the home is already under contract, the deal won’t close until the buyer’s financing is officially approved.
Home Evaluation Contingencies
Homes that fall under contract often incorporate a home evaluation contingency. This type of contingency is in place to protect the buyer if the property is valued lower than the agreed-upon price. Since lenders often don’t finance more than the appraised value, a low appraisal can create a significant gap. If the seller is unwilling to lower the price, the buyer is required to cover the difference out of pocket, in addition to the down payment and closing cost fees, which can easily add up.
Home Sale Contingencies
Oftentimes, a buyer will opt to put a home under contract with a contingency that depends on selling their current home beforehand. This can help them to avoid juggling two mortgage payments at once, something that can break your bank. However, there is a catch: if they can’t sell their home within the agreed-upon timeframe, they can risk losing the new property altogether.
What Are the Key Differences Between Under Contract and Pending?
Along with the commonly used terms in real estate, such as “under contract” and “active under contract,” you may also encounter listings marked as “sale pending.” The key difference between these labels can be confusing, especially since some markets or Multiple Listing Service (MLS) systems use them interchangeably. “Pending” means the seller has accepted an offer and all contingencies have been cleared. While this deal might still be wrapping up final steps, such as the last inspection, the seller stops considering backup offers once the status switches to pending.
Bottom Line
If you’ve found the perfect home but it’s listed as “under contract,” it’s essential to remain positive. Although many homes under contract tend to close, a variety of things can occur to give you another opportunity. It is necessary to understand why a home falls out of contract; the previous buyer’s loss may be your gain if red flags aren’t recognized and your backup offer is accepted. Discuss with your real estate agent if you are interested in a home with a pending status. Trust the real estate professionals at Burling Square Group to guide you in finding and settling down in the house of your dreams in the many beautiful suburban Winnetka neighborhoods that make up the incorporated village of Winnetka, IL, today.