While getting involved in the real estate transaction, you may come across the term “Under Contract” which is common. Whether you’re about to buy your dream home or sell your property, understanding major terminologies can be beneficial. It helps to avoid confusion and protects the interests of both parties.
So, now let’s dive into what being “under contract” truly signifies and what it means in a real estate journey.
In simple terms, we can say that when a property is “under contract, ” both parties have agreed upon the sale by signing a contract.
However, it is just the beginning of the sale and some contingencies must be met to finalise the sale.
Financial Contingency
This is the condition when a buyer gets time to manage mortgage or loan approval from the lender. The main purpose of this contingency is to ensure that the buyer can purchase the property without harming the seller’s property or interest. Hence, if the buyer is unable to arrange finance, then they can withdraw from the contract.
Home Inspection Contingency
For a property used for several years, a buyer has the right to examine it before buying it. To trace out possible issues or problems a detailed home inspection is conducted. In this contingency, the buyer has the option to negotiate and ask for the repairs & maintenance. Thus in certain cases, they can even terminate the contract if issues are not resolved.
Appraisal Contingency
To confirm if the property’s value matches the loan amount or not, the lenders demand an assessment which is the Home Appraisal.
If the appraisal is lower than the agreed-upon price then it may affect the financing. Depending on the contract, the buyer can renegotiate and if not the seller has the right to terminate the contract.
Sale of Existing Home Contingency
Buyers occasionally have to sell their current home before acquiring a new one. They may terminate the agreement if they are unable to sell their existing property.
What Happens When A Property Is ‘Under Contract’?
Once the conditions are met, the property approaches closing, at which point ownership is formally transferred to the buyer. However, if the conditions are not satisfied, the transaction may fail and the property may be relisted. Your real estate agent will assist you and ensure that all the necessary steps are taken.
Can a property be ‘under contract’ yet still accept offers?
In rare situations, sellers may accept backup proposals while the property is under contract. This implies that if the first agreement falls through, another bidder has already made an offer. However, while the house is under contract, it is typically regarded as off the market to potential purchasers.
