What Does Under Contract Mean In Real Estate?

When a house goes on the market and buyers make offers, the status of the house usually goes from "for sale" to "under contract," as the seller works with a buyer to complete the transaction. However, "under contract" does not mean the house is sold. This is because real estate contracts include the price of a home along with various other terms. 

The seller's real estate agent will assist them as they sort through the various offers. Once they accept an offer, both sides sign a contract that spells out the transaction's terms, conditions, and price. Quicken Loans notes that contracts usually contain at least three contingencies — an appraisal contingency, a home inspection contingency, and a financing contingency. During this process, the house is listed as "under contract." This is so other potential buyers know that the seller is in negotiations, although the house is not yet sold, and they can make an offer. Depending on the various demands or contingencies, the house may or may not be sold to that particular buyer.

Under contract activities

While the house is under contract, a flurry of activity will occur. Buyers may ask for an inspection to determine if there are any overriding issues regarding the repair or condition of the house. The Balance describes how if something major is found by an independent housing inspector, the buyer may return to the seller, asking them to make repairs. Within the negotiations, the seller may decline, seek a compromise, or lower the price of the house — there are many possibilities to arrive at an agreed-upon solution.

It's important to understand that while a house is under contract, the negotiations, inspections, and other considerations, including the buyer's finances, are scrutinized. In a dramatic but not unheard-of turn of events, the owner may decide not to sell at all. It's also possible that the buyer changes their mind or cannot obtain financing. As Realtor points out, many smart sellers will entertain a secondary offer or backup deal in case the first sale falls through.

The next step in the real estate transaction is moving the status from "under contract" to "pending," meaning that all contingencies have been satisfied and nothing is standing in the way of the deal being finalized. In the pending phase, the buyers and sellers are simply waiting to sign the final paperwork. However, a pending sale is still not a completed sale. According to SFGate, the house is legally sold when the title of ownership of the house passes from the seller to the buyer.