Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
You will often come across the termcon Under Contract in Real Estate while searching for real estate online. “Under Contract:” what’s the meaning of this term in real estate vs other homes that are active or in pending status? Can you make an offer on a house if it’s “under contract”? You finally found the home that you know is the one, but it is “under contract.” For a buyer, this can be not very reassuring.
For instance, you’re looking to buy a home and want to know whether or not it’s even worth viewing it if it is “under contract.” Or, from a seller’s perspective, you have a home for sale and want to know if you can continue to accept offers if it’s “in contract.” No matter your situation, the process of purchasing a home can be stressful. In this blog post, we will go over the meaning and ramifications of a property “under contract” in real estate.
What does “under contract” mean in real estate terms? “Under contract” means a buyer has put in an offer that the seller has accepted. Still, the offer on a home is contingent upon meeting one or more conditions. If the buyer does not meet these conditions within the proper timeframe, the deal is no longer valid. As a result, the house will once again be up for sale. For instance, a buyer may include a contingency that allows them to back out without consequences if the buyer realizes the house needs significant repair or a major problem comes up.
These contingencies generally allow both the buyer and seller a way out of the deal without legal consequence should any problems arise.
A written purchase contract between buyer and seller outlining the deal’s terms must be signed for a house to be considered officially “under contract.”
When the buyer and the seller signed a written agreement, the house is officially “under contract.” As a result, the seller cannot legally sell the house to any other buyer unless both buyer and seller are not meeting the terms outlined in the contract. Therefore the contract is void. The sales purchase agreement is legally binding. Thus it prevents the seller from choosing to sell to a different purchaser.
If you like a house that is currently “under contract,” there is still a chance. Keep in mind a buyer and a seller must meet the contract’s terms for a deal to close. However, that does not always happen. It’s common for a deal to fall through for various reasons and not to make it to closing. For instance, the buyer might be unsatisfied with the result of a house inspection. The buyer’s financing might fall through, or an appraisal could come back considerably lower than the sales price.
Technically, yes! But a seller generally cannot just cancel or back out of a deal because a higher offer has come along. A contract is legally binding. This is the type of situation when your real estate agent needs to provide key guidance along with your attorney.
Realistically no! It depends on the terms of the deal. In most cases, a seller can only accept a backup in case the first deal falls through.
As we explained, even if a house is “under contract,” the seller can still choose to accept “backup offers.” Sellers realize that sales sometimes fall through. Sellers can’t back out of a deal if they are “under contract” with another buyer. However, they can continue to show the home.
It is up to the seller and seller’s broker to continue to show the house and accept offers. In practice, sellers’ brokers would do that as a backup plan.
To maximize your chances of buying a home, you should submit a backup offer. This behavior can help you secure the house before it gets back on the market again. Make it attractive to the seller. However, don’t bid over the asking price.
In case that first deal does fall through, don’t get too excited. Look into why that transaction never made it to closing: home inspections, significant repair found, any lien or litigation, etc. IF it’s a coop, the explanation could be that the buyer got declined by the Coop Board because his post-closing liquidity was too low, for instance. Don’t let yourself be so eager to buy that home that you overlook other aspects or red flags. If you decide to move forward with the deal, you should still do your legal, due diligence and complete a home inspection. Get the expertise of your NestApple agent.
If you like a house that is “under contract,” it is still worth submitting an offer as a backup. There’s always a chance the original sale will fall through. But don’t hold your breath. Keep looking at other properties while you wait to see what happens. Many other buyers choose not to get their hopes up and so won’t enter backup offers. We think it’s not always a bad idea. This way, if you do get a shot, your back up offer may prevent the home from being listed again. It’s key to be pre-approved if you plan to get a mortgage and be ready to submit a very professional offer letter.
It would be best if you were flexible with where you currently live, whether you own a place you plan to sell or a lease you plan to break.