Table of Contents
What Does Under Contract Mean?
Can a Home Seller Back Out of an Under Contract Deal?
Can You Buy a House That Is Under Contract?
Can a Seller Accept Another Offer While Under Contract?
How to Make an Offer on a House Under Contract
Under Contract Meaning Bottom Line
What Does Under Contract Mean?
Under contract is a real estate term that means that a buyer has put in an offer that the seller has accepted. In most cases, when real estate is under contract, certain conditions or contingencies still need to be met before the deal can close. For these reasons, you might also see under contract homes marked as contingent or pending.
When a home is under contract it means that the buyer and seller have agreed on the terms of the sale, including the purchase price, closing date, and any contingencies. Both parties have also signed the contract, making it legally binding.
If a house is under contract and the buyer is unable to meet the set conditions within the allotted amount of time (as stated by the contract), then the deal is no longer valid, and the house will once again be up for sale. For example, a buyer may include a contingency that allows them to back out without consequences if a major repair is found during the home inspection.
These contingencies typically exist to allow both the buyer and seller a way out of the sale without legal consequence should any problems arise, or if specific issues are not taken care of. For a house to be considered officially under contract, a written agreement between buyer and seller outlining the terms of the deal must be signed.
What Happens After "Under Contract"
Closing
Once all contingencies are met, and due diligence is complete, the sale moves to the closing phase. At closing, the buyer pays the remaining balance of the purchase price, and the seller transfers ownership of the property to the buyer.
Failed Contracts
If any contingencies are not met, or issues cannot be resolved, the contract may be terminated. The buyer usually receives their earnest money deposit back, depending on the terms of the contract and the reason for termination.
Backup Offers
While a property is under contract, sellers may accept backup offers in case the primary deal falls through. Backup offers are secondary and only come into play if the original contract is terminated.
Can a Home Seller Back Out of an Under Contract Deal?
If a seller and a buyer have entered into a written agreement, and the house is officially under contract, the seller cannot legally sell the house to any other buyer unless the terms outlined in the contract are not met, and the contract is then void. The sales purchase agreement and contract are legally binding, preventing the seller from changing their mind and choosing to sell to a different buyer.
Can You Buy a House That Is Under Contract?
If you have fallen in love with a house under contract, don’t worry, all is not lost. All the terms of the contract must be met for the sale to close, and this certainly doesn’t always happen. It’s not uncommon for a deal to fall through in the under contract stage for any number of reasons. Typically, a sale may not make it to closing for reasons such as the buyer being unsatisfied with the result of a house inspection, the buyer’s financing falling through, or an appraisal that comes back considerably lower than the sales price.
Can a Seller Accept Another Offer While Under Contract?
Technically, yes, a seller can accept another offer while the home is under contract. That being said, a seller generally cannot just cancel or back out of a contract, because a higher offer has come along, as a fully executed contract is legally binding. Realistically, it depends on the terms of the contract, but in most cases, a seller would only be able to accept a backup in case the initial deal falls through.
How to Make an Offer on a House Under Contract
1. Ask the Seller if They'll Accept a Backup Offer
The first step to making an offer on a house under contract is to ask the seller if they'll accept a backup offer. Fortunately, even if a house is under contract, the seller can still choose to accept backup offers, and in most cases, they will, since they likely understand that sales can (and do) fall through. Although they can’t back out if they are under contract with another buyer, it doesn’t mean that they can’t continue to show and market the home. It is up to the seller whether they will continue to show the house and accept offers. Typically speaking, it is advantageous for them to do so as a backup plan.
2. Make a Backup Offer
If the seller is willing to accept a backup offer for their under contract house, it's time to make one. A backup offer can help you secure it before it goes back on the market. Speak to your real estate agent about the best way to enter a backup offer, you’ll want to make it attractive to the seller, but you don’t want to be so eager that you bid way over the asking price.
3. Consider Why the First Deal Fell Through
If the first deal does fall through, don’t get too excited just yet. It’s a good idea to look into the reasons why that first sale never made it to closing. Since so many sales go awry because of home inspections, make sure that there wasn’t a significant repair found that could put you off buying the house. You might be excited at the chance to purchase the home, but don’t let yourself be so eager at the opportunity that you overlook potentially off-putting points.
House Under Contract Backup Offer Considerations
There are a lot of things to consider when making a backup offer on a house that's under contract. For example, let’s say your dream home is listed at $250,000, but it is under contract. After you tour the house, you decide to submit an offer for $255,000. A week later you get a call saying that the original deal fell through and the seller would like to accept your offer.
Before accepting, you should first find out why the original contract fell through. Was there a major problem that came out of nowhere, or did the seller refuse to fix something? Once you find out, you can then make an informed decision on the house. If you decide to purchase, you should still do your due diligence and complete a home inspection and talk with your agent.
Under Contract Meaning Bottom Line
Being under contract is a critical phase in the real estate transaction process, signifying that a mutual agreement has been reached but the sale is not yet complete. Both parties must work through various contingencies and due diligence steps to ensure a successful closing. Understanding what "under contract" means helps buyers and sellers navigate this crucial stage with clarity and preparedness.
Ultimately, if you think you’ve found your dream house but it is under contract, it is still worth putting in a backup offer. There’s actually a decent chance the original sale will fall through, and you’ll get your time to shine. But it’s advisable to continue looking at other properties while you wait to see what happens.
Many buyers choose not to get their hopes up, and so won’t enter backup offers. But if you are looking at homes in a popular area, or a house that is highly sought after, it’s not a bad idea. This way, if you do get a shot, your back up offer may prevent the home from being listed again, which in turn could prevent you from having to deal with other competitive buyers and insinuate a bidding war.
For sellers, the same is true. Even though you have a house listed under contract, accepting additional offers can provide a backup plan if the deal falls through.