What Does Under Contract Mean in Real Estate?

What Does Under Contract Mean in Real Estate?

In real estate, the term under contract indicates that the buyer’s offer has been accepted by the seller and the necessary documents following the success of the transaction has been signed.

By signing a purchase agreement, it shows that both sides are willing to take the step to complete the transaction.

Understanding What Happens While a Property is Said to be Under Contract

Like we have mentioned before, a property under contract means both parties have signed the legal document which completes the sale transaction. This is the first legally binding step between both parties.

At this stage, they are way passed agreeing on a sale price or closing cost.

However, the contract document might contain contingents; which are conditions that must be met in order for the process to be complete.

In this article, we will talk about some of the most common contingents in real estate contracts.

Contingents and How They Affect a Property Under Contract

Contingents are very important in a property sale transaction. During the home buying process, certain conditions have to be met.

These conditions can range from the finances of the buyer, inspection, appraisal, and repairs. Basically, any conditions that has to be met in order to guarantee the success of the transaction is known as a contingent.

For a buyer, a contingent protects them from purchasing a property that will end up being a loss to them.

For instance, the property might need expensive repairs that wasn’t noticed before. It is also possible that the property might not be worth the asking price on the market; also, the property might have ownership problems.

Problems like this can end up causing a loss for the buyer. So, contingents are put in place to make sure the buyer can back out when issues like this arise.

For the seller, the contingents in the contract states who is responsible for any hiccups moving forward. It also states the criteria that has to be met.

Lastly, if the contract doesn’t contain any contingent then it means the property is just as the buyer wants it.

Here are some of the most common contingents people come across during property sales.

 1. Appraisal Contingent

The appraisal contingent allows a buyer to pull out of a transaction if the property’s appraised value is lower than the asking price.

What happens is, before a buyer completes the transaction, licensed appraisals go on to access the value of the property. This is just to make sure that the buyer is getting the right value for the property they are paying for.

 2. Home Inspection Contingent

This is kind of a given. However, home inspection isn’t done by just anybody. Buyers have to hire professionals who can inspect the house and give information about the condition of the house.

The home inspection contingent is important because buyers need to know if the property can last them a long time or check for any hazards.

In some cases, the buyer waives this contingent if the repairs can be handled. In other cases, buyers set a maximum amount for repairs in their contract. If the repairs exceed the amount then they get to negotiate a new price or back out of the deal.

 3. Financing Contingent

This contingent is set in place in the case where the buyer is yet to obtain the financial support they need to buy the house.

Let’s say a buyer asks for a loan in order to buy a property. If the loan doesn’t come through. The buyer is allowed to pull out of the deal without facing any issues.

Is It possible to Back Out of a Real Estate Transaction Under Contract?

Yes. The buyer or even the seller is allowed to back out of a deal if the contingents are not met.

Even if payments for the property has been made, and one contingent is discovered, the other party can decide to pull out without any consequences whatsoever.

When things like this happen, the seller can accept any other offer that was made while the property was said to be under contract.

How Often Does a Property Under Contract Fall Through?

In most real estate transactions, people are buying a home with a mortgage from other property which they own. That means they have to wait to get extra finance to buy the new property.

Sometimes the finance doesn’t always come through. So they have to pull out before closing. Also, there are common issues of appraisals coming in low. This can as well end the transaction before closing.

There are just so many issues that could occur and just stop the transaction. So, a property under contract can get canceled anytime.


A property under contract is very close to closing. However, it isn’t a done deal. There are still certain things that must be taken care of before closing. So in most cases, sellers are still allowed to keep receiving offers.

The post What Does Under Contract Mean in Real Estate? appeared first on SJR Estates – Real Estate Guest Posts and Write for us.

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