Navigating the world of real estate can be daunting, especially when confronted with terms like “under contract” or “pending.” These statuses signify crucial stages in the home buying and selling process but carry nuanced differences that impact buyers, sellers, and agents alike. Understanding these terms can empower buyers to make informed decisions, especially when they stumble upon their dream home with an “under contract” or “pending” label.
This article explores what “under contract” means in real estate, how it differs from “pending,” the role of contingencies, and whether buyers can still make offers on homes with these statuses. By understanding these details, both first-time and seasoned buyers can navigate the complexities of real estate transactions more effectively.
What Does ‘Under Contract’ Mean in Real Estate?
A property listed as “under contract” indicates that the seller has accepted an offer from a buyer, and both parties have signed a purchase and sale agreement. However, this is not the final stage of the sale, as contingencies must still be met for the transaction to close. These contingencies act as safeguard clauses, allowing either the buyer or the seller to exit the agreement under specific conditions.
In essence, a home under contract is in the escrow phase. While progress has been made, the deal is not guaranteed to close, as unmet contingencies can derail the sale.
Key Characteristics of ‘Under Contract’ Status
- The property is temporarily off the market, but the sale isn’t finalized.
- Buyers and sellers are bound by a legal agreement contingent upon certain conditions being fulfilled.
- Backup offers can sometimes be submitted, giving other buyers a chance if the initial deal falls through.
How Is ‘Under Contract’ Different from ‘Pending’?
While “under contract” and “pending” are often used interchangeably, they represent distinct phases of a real estate transaction. Understanding these differences is critical for buyers and sellers.
Under Contract
- A property under contract still has outstanding contingencies.
- Common contingencies include inspection, financing, and appraisal conditions.
- Sellers might accept backup offers during this stage as there is still a risk of the initial deal falling through.
Pending
- A pending status indicates that all contingencies have been resolved.
- The transaction is moving toward closing, with minimal risk of falling apart.
- Properties listed as pending are generally no longer open to backup offers.
In summary, “under contract” represents a more tentative phase, while “pending” suggests a near-certain completion of the sale.
What Are Contingencies in Real Estate Transactions?
Contingencies are critical clauses in a purchase and sale agreement that protect both buyers and sellers. They outline specific conditions that must be met for the transaction to proceed. If these conditions are not satisfied, the agreement can be canceled without significant penalties.
Common Types of Contingencies
- Inspection Contingency
This allows the buyer to back out of the deal if a professional home inspection reveals significant issues. Commonly evaluated aspects include:- Plumbing and electrical systems
- Structural integrity
- Heating and cooling systems
Buyers can negotiate repairs or a reduced price based on inspection results. If no agreement is reached, they may invoke this contingency to exit the deal.
- Appraisal Contingency
Lenders require an appraisal to ensure the property’s value aligns with the loan amount. If the appraisal comes in lower than the agreed purchase price, buyers may either cover the difference or terminate the agreement. - Financing Contingency
This protects buyers in case their mortgage application is denied. If financing falls through, buyers can withdraw from the agreement without legal repercussions. - Home Sale Contingency
Buyers relying on the sale of their existing home to fund a new purchase may include this contingency. If they cannot sell their current home within a specified timeframe, they can back out of the new deal. - Option Period
While not technically a contingency, some buyers purchase an option period for a nominal fee. This grace period allows them to cancel the agreement for any reason without facing penalties.
Can Buyers Make Offers on Homes That Are Under Contract or Pending?
Yes, buyers can submit backup offers on homes under contract or pending, but the likelihood of success varies depending on the transaction stage.
Under Contract
For properties under contract, submitting a backup offer can be a strategic move, especially in competitive markets. Since contingencies remain unresolved, there is a chance the deal could fall through. Real estate agent Tamara Strait notes that backup offers were especially common during periods of low inventory, such as in 2021, and remain relevant in today’s competitive landscape.
Pending
Properties with a pending status are less likely to accept backup offers, as all contingencies have been cleared. However, unforeseen issues could still disrupt the sale, creating an opportunity for interested buyers.
Tips for Submitting a Backup Offer
- Offer competitive terms, such as waiving contingencies or proposing a quick closing timeline.
- Secure mortgage preapproval to demonstrate financial readiness.
- Work closely with a real estate agent to navigate the nuances of backup offers.
What Are the Risks of Submitting Backup Offers?
While submitting a backup offer can increase your chances of securing a desirable property, it’s not without risks:
- If you make multiple backup offers on different homes, you could be legally obligated to purchase more than one property if multiple deals fall through.
- Backup offers often come with emotional and financial uncertainties, as buyers may face prolonged waiting periods without guaranteed outcomes.
Why Do Real Estate Contracts Fall Through?
According to the National Association of Realtors, approximately 5% of real estate contracts are terminated before completion. The most common reasons include:
- Appraisal Issues: When the appraised value falls short of the agreed price.
- Financing Problems: Buyers failing to secure a mortgage loan.
- Inspection Concerns: Significant repairs or safety hazards uncovered during the inspection.
Interestingly, contracts can also fall through due to minor disputes. For instance, one buyer nearly backed out over a garden spider egg sac left on the property, which was eventually resolved by the seller.
How Long Do Contingencies Typically Last?
Contingencies vary by market, location, and contract specifics. However, typical timeframes include:
- Option Periods: 3–7 days
- Inspection Contingencies: 7–14 days
- Financing Contingencies: Up to 30 days, sometimes tied to the closing date
Understanding these timelines can help buyers and sellers anticipate potential delays or risks during the transaction.
The Bottom Line on Being ‘Under Contract’
While “under contract” represents a significant step toward purchasing a home, it’s not a guaranteed sale. Buyers should understand the implications of contingencies, explore the possibility of backup offers, and work with experienced agents to navigate this complex process.
For buyers in competitive markets, keeping an eye on under-contract properties and submitting strategic backup offers can be a winning strategy. At the same time, sellers should manage contingencies carefully to avoid losing potential deals.
By understanding the nuances of “under contract” and “pending” statuses, buyers and sellers can better prepare for the challenges and opportunities in the real estate market.