Being Under Contract Mean
When a property is described as “under contract,” it means that the buyer and seller have agreed on terms, and a legally binding agreement has been signed. This status indicates the home is no longer actively on the market but the sale has not yet closed.
The “under contract” phase involves completing inspections, appraisals, and financing checks before the final sale. It signals serious intent but still allows for contingencies and final approvals.
Understanding what “under contract” means helps buyers and sellers know where they stand in the process. It also clarifies that the sale is progressing but is not yet complete.
What Does ‘Under Contract’ Mean In Real Estate?
When a property is described as “under contract,” it indicates that the buyer and seller have agreed on terms, but the sale is not final. This status involves specific legal and listing details that impact the transaction timeline and market visibility.
Legal Definition of ‘Under Contract’
“Under contract” means both parties have signed a legally binding purchase agreement. This agreement outlines the sale price, contingencies, and deadlines. Neither party can back out without consequences unless contract terms allow.
Contingencies often include home inspections, financing approval, and appraisal results. For example, if a buyer cannot secure a mortgage due to changing interest rates—currently affected by shifts from historical lows to recent increases around 7%—they may exit without penalty.
The property is typically taken off active listings, pending final steps like title searches and closing. This phase can last days to weeks, influenced by state median home prices and local market conditions.
Difference Between ‘Under Contract’ and ‘Pending’
“Under contract” and “pending” often confuse buyers and sellers. Both terms mean an accepted offer exists, but “pending” usually applies when all contingencies are cleared.
A property “under contract” could still be subject to approvals or inspections. Once these are satisfied, the status updates to “pending,” signaling fewer risks before closing.
Some states use these terms differently, so MLS systems may label properties inconsistently. Understanding this distinction helps avoid misunderstandings about transaction progress and timeline expectations.
How ‘Under Contract’ Is Displayed in Listings
Listings marked “under contract” show that an offer was accepted but the sale isn’t complete. This status alerts buyers that the property is off the active market but may fall through.
Real estate websites often use labels such as “Under Contract,” “Contingent,” or “Pending.” These indicators clarify the stage of the sale.
In higher-cost states with median prices above the national average, homes spend less time under contract due to strong buyer competition. Conversely, markets with fluctuating mortgage rates may see longer contract periods.
Sellers and agents rely on these labels to manage buyer interest and set calendar expectations for showings and negotiations.
The Homebuying Process Leading to ‘Under Contract’
The path to a home being marked as ‘under contract’ involves key steps around making an offer and negotiating terms. These stages determine if the buyer and seller reach a mutual agreement before moving to financing and closing.
Making and Accepting an Offer
The buyer submits a formal offer to purchase the home, which includes the proposed price, contingencies, and closing timeline. Offers often reflect local market conditions, such as median home prices, which vary widely by state.
Buyers typically include contingencies like home inspections or mortgage approval—important given the minimum mortgage requirements for 2025, such as higher credit score thresholds and down payment rules. The seller reviews the offer and either accepts, rejects, or asks for changes.
Real estate agent commissions, generally 5-6% of the sale price, are factored into negotiations but do not usually affect the buyer’s offer directly. Once the seller accepts the offer as presented, the property is officially “under contract.”
Negotiations and Counteroffers
If the seller does not accept the initial offer, they issue a counteroffer with adjusted terms—often around price or contingencies. This back-and-forth can repeat multiple times until both parties agree or one side withdraws.
Successful negotiations focus on balancing the buyer’s financing ability and the seller’s desired sale price. For example, buyers must consider if they meet 2025 mortgage criteria to avoid losing financing contingencies.
Agents play a critical role here, advising clients on competitive offers and local market trends. The negotiation phase ends when agreements are signed, triggering the official under contract status and moving the deal toward closing.
Key Steps After a Home Is Under Contract
Once a home is under contract, several important steps ensure the sale proceeds smoothly. These include confirming the property condition, securing the necessary loan approval, and finalizing all contractual obligations. Each must be handled carefully to avoid delays or cancellations.
Home Inspection and Appraisal
The buyer arranges a home inspection to identify any issues with the property’s structure, systems, or safety. Inspectors check the roof, HVAC, plumbing, electrical work, and more. If significant problems arise, the buyer may negotiate repairs or credits with the seller.
Next, an appraisal is ordered by the lender to verify the home’s market value. This is critical when financing with loans like FHA loans, which require the appraisal to meet certain standards for loan approval.
If the home appraises below the contract price, the buyer may renegotiate or risk losing the loan. This step protects both lender and buyer from overpaying for the property.
Securing Financing and Mortgage Approval
After inspection and appraisal, the buyer focuses on securing final loan approval. This includes submitting updated financial documents and completing underwriting requirements.
For buyers using FHA loans, the process demands specific criteria, such as minimum credit scores and mortgage insurance premiums. Current home equity loan rates for May 2025 are also relevant if buyers plan to leverage existing home equity to fund the purchase.
A home equity line of credit (HELOC) may be an option for supplemental financing, offering flexibility but with variable rates and potential risks. Alternatively, construction loans apply if the buyer plans major renovations, involving different terms and draw schedules.
Final loan approval confirms the buyer can fund the purchase, making the contract binding and ready to move forward.
Finalizing the Purchase Agreement
The last step is ensuring all contractual conditions are met before closing. This includes resolving contingencies like repairs, financing confirmation, and title clearance.
Buyers review the final purchase agreement for accuracy, covering price, inclusions, closing date, and any negotiated changes after inspection. Both parties sign the updated documents to finalize terms.
The escrow or title company coordinates these steps and orders a title search to verify ownership and any liens. Once everything is in place, the transaction moves to closing, where funds and ownership officially transfer.
The buyer should also prepare for closing costs and any prepaid expenses, ensuring all financial commitments are clear.
Common Contingencies In an ‘Under Contract’ Agreement
Certain conditions must be met before the contract moves forward. These contingencies protect both the buyer and seller by ensuring critical steps like financing and inspections are satisfactory.
Financing Contingency
A financing contingency allows the buyer to secure a mortgage before fully committing to the purchase. If the buyer cannot obtain a loan, such as an FHA loan, this contingency can cancel the contract without penalty.
FHA loans require specific criteria, including low down payments and mortgage insurance. The contingency protects buyers who rely on these loans or other financing methods like a home equity line of credit (HELOC).
If the bank denies the loan or terms become unfavorable, the buyer can walk away. Sellers should ensure buyers have pre-approval to reduce risks tied to this contingency.
Inspection Contingency
An inspection contingency lets the buyer hire a professional to examine the property’s condition. It protects buyers from undisclosed issues like structural damage or mold.
If the inspection reveals major problems, the buyer can negotiate repairs, request credits, or cancel the deal altogether. The timeline for inspections is usually short and clearly outlined in the contract.
Sellers should disclose known issues upfront to prevent surprises. Buyers benefit from inspecting homes thoroughly, especially older properties or those with complex systems.
How ‘Under Contract’ Affects Buyers and Sellers
Being under contract changes the roles and responsibilities for both parties. It limits certain actions while allowing others, impacting the homebuying timeline and financial commitments. Understanding these specifics helps manage expectations and avoid potential issues.
What Buyers Can and Cannot Do
Buyers under contract have committed to purchasing the home but still need to complete inspections, appraisals, and secure financing. They can negotiate repairs or seller concessions based on inspection results during the contingency period. Reviewing financing contingencies is critical, especially amid economic uncertainties like recession fears, which might affect loan approvals.
Buyers cannot back out without consequences after contingencies expire, or they risk losing their earnest money deposit. They are also restricted from renegotiating the purchase price unless new issues arise. Buyers should work closely with agents to understand commission structures, as typical fees are built into the sale price and do not change at this stage.
What Sellers Can and Cannot Do
Sellers under contract must keep the property available for buyer inspections and appraisals. They can still disclose new issues found in the home, which might lead to renegotiations or concessions. Sellers remain responsible for maintaining the home’s condition until closing.
They cannot accept other offers once under contract and must adhere to agreed terms to avoid legal issues. Sellers typically rely on their agents to manage fees and commissions, which are paid after closing and usually split between buyer’s and seller’s agents. Sellers should be aware that recession fears might reduce buyer demand but don’t affect the validity of the contract itself.
When Can a Home Go Back on the Market?
A home goes back on the market once the contract between buyer and seller is no longer valid or is terminated. This situation most often occurs due to failed conditions or unmet requirements during the contract period.
Common Reasons for Contract Failures
Contracts fail primarily due to financing issues, inspection results, or appraisal values. If the buyer cannot secure a mortgage that meets the minimum 2025 mortgage requirements, the contract will likely fall through.
Inspection problems such as undisclosed damage can also cause buyers to back out. Additionally, if the home appraisal comes in lower than the offer, the lender may not approve the loan amount, making it impossible to finalize the sale.
In these cases, the seller can relist the property immediately or after negotiating with the original buyer, depending on the situation.
Impact of Contingencies on Listing Status
Contingencies in contracts give buyers and sellers conditions to fulfill before finalizing the sale. Common contingencies include financing approvals, inspections, and appraisal results.
If a contingency fails, the contract typically becomes void, and the home returns to active listing status. Sellers often keep listings marked as “pending” until contingencies clear, but once they fail, the home can be openly marketed again.
Understanding contingencies helps sellers avoid prolonged uncertainty. Quick resolution of these issues allows the home to hit the market promptly after a failed contract.
Financing Considerations While Under Contract
Financing plays a critical role once a property goes under contract. Buyers must understand loan options, approval processes, and payment schedules to avoid delays or loss of the deal.
Types of Loans Available
Buyers commonly use conventional loans or government-backed loans such as FHA loans during the contract period. An FHA loan requires a lower credit score and down payment, making it popular for first-time buyers.
Construction loans apply when purchasing or building new properties. These loans fund the building process in stages, converting to a mortgage once construction completes.
Current home equity loan rates for May 2025 average around 6.2% to 7.0%, and some buyers use this financing for down payments or renovations. Selecting the right loan type depends on credit status, intended use, and financial readiness.
Down Payment and Mortgage Approval
Down payment amounts vary by loan: FHA loans require as little as 3.5%, while conventional loans often expect 5% to 20%. Buyers should prepare these funds early.
Mortgage approval under contract involves lender verification of income, assets, and credit. Delays can occur if documents are incomplete or if property appraisal falls short.
Buyers risk losing their deposit if financing contingencies aren’t met by contract deadlines. Timely communication with lenders and agents ensures smoother approval and closing.
Costs and Fees Associated With Being Under Contract
When a property is under contract, buyers and sellers face several specific costs. These fees include deposits that secure the agreement, payments for property inspections and appraisals, and various closing expenses required to finalize the sale.
Earnest Money Deposit
The earnest money deposit is a good-faith payment made by the buyer to show serious intent. This deposit typically ranges from 1% to 3% of the purchase price but can vary by location and market conditions.
This money is held in escrow until closing. If the deal closes successfully, the deposit usually applies toward the down payment or closing costs. However, if the buyer backs out without valid contingencies, they may forfeit this deposit.
Sellers rely on earnest money as a sign of commitment. Buyers should ensure they understand the terms under which the deposit is refundable.
Inspection and Appraisal Fees
Buyers generally pay for home inspections to identify potential issues with the property. Typical inspections cost between $300 and $500 but can increase depending on the property’s size and complexity.
An appraisal is required by the lender to verify the home’s market value. Appraisal fees average around $450, but this varies by region and property type.
Both inspections and appraisals protect the buyer by confirming the property’s condition and value. These fees are usually paid upfront and are non-refundable, regardless of whether the sale completes.
Closing Costs
Closing costs include various fees required to legally transfer property ownership. On average, buyers pay between 2% and 5% of the purchase price in closing costs.
These fees typically cover:
- Title insurance
- Loan origination fees
- Recording fees
- Prepaid taxes and insurance
Homeowners insurance costs about $1,700 annually as of May 2025 and is often prepaid at closing. Real estate agent commissions also factor into overall expenses but are usually paid by the seller and split between listing and buyer’s agents, averaging around 5% to 6% of the sale price.
Buyers should review a detailed closing disclosure before finalizing the purchase to understand all fees involved.
Contract Expiration, Extensions, and Cancellations
A real estate contract includes specific timeframes that both parties must follow. These define when the contract ends, how it can be extended, and the conditions under which it can be canceled. Understanding these timelines helps avoid missed deadlines and potential legal issues.
Contract Deadlines
Contracts have firm deadlines for key steps like inspections, financing approval, and closing. These dates are usually stated clearly in the contract document. If a party misses a deadline, the other party may have the right to terminate the contract or request remedies.
Common deadlines include:
- Inspection period: Time allotted to review the property condition.
- Financing contingency: Deadline to secure loan approval.
- Closing date: The final date the sale must complete.
Timeliness is crucial, as missing a deadline can lead to loss of earnest money or contract termination.
How Extensions Are Handled
Extensions must be mutually agreed upon and documented in writing. They can be requested if either party needs more time to complete contingencies or prepare for closing.
A typical extension process involves:
- One party proposing new deadlines.
- Both parties signing an addendum to modify the original contract.
- Confirming any fee or penalty terms related to the extension.
Without written consent, a contract will expire as originally scheduled regardless of verbal agreements.
Process for Contract Cancellation
Cancelling a contract occurs when one or both parties decide not to proceed with the sale under the contract terms. Valid reasons often involve failure to meet contingencies or contractual breaches.
Cancellation steps usually include:
- Notifying the other party in writing.
- Fulfilling any financial obligations, such as forfeiting earnest money if stipulated.
- Returning any documents or deposits as agreed.
Improper cancellation without cause can result in legal consequences or financial penalties.
Impact of Being Under Contract on the Real Estate Market
Being under contract directly affects the availability of homes for sale and influences buyer and seller behavior. It also plays a role in pricing trends across different housing types and regions.
Effect on Home Inventory
When a property is under contract, it is temporarily removed from the active listings, reducing the available home inventory. This decrease in supply can tighten the market, especially in states with already low inventory levels.
For example, states with higher median home prices tend to see faster reductions in inventory as contracts are signed quickly. Additionally, the mobile home segment is notable; mobile home prices are rising faster than single-family homes, leading to quicker contracts in that category.
Lower inventory often pushes buyers to compete more aggressively, which can accelerate price increases in heated markets. Sellers benefit by having less competition, potentially receiving higher offers.
Implications for Buyers and Sellers
Buyers face more pressure when homes go under contract swiftly, reducing their window for viewing or negotiating comparable properties. This may limit their options and force decisions on less-than-ideal homes or at higher prices, especially in states with rising median prices.
Sellers gain leverage when their home goes under contract quickly, indicating strong demand. It often leads to fewer contingencies or concessions needed to close the sale. However, they must also prepare for potential delays if the buyer’s financing or inspections stall during the contract period.
Both parties must remain responsive and flexible during the under-contract phase to secure successful transactions amid dynamic market conditions.
