What It Means When a House Is Under Contract

That dream home you’ve been pining after just had its listing status changed to under contract. While it might seem like your goal of having the home to yourself is over, there could still be hope. 

“If a home is under contract, it usually means that the seller has accepted an offer from a buyer, and escrow has been opened,” says Tamara Rizzi of The Rizzi Group. “However, don’t be too quick to take it off your list if it is truly a property you are interested in. Your agent can communicate with the seller’s agent to get a feel for how the property sale is going thus far.”

Here, experts share their insights into the under contract status of homes and what exactly it means for both buyers and sellers.

What does under contract really mean?

When a home is under contract, it means there’s an agreement that both parties have reached regarding the sale of a home. 

“In a real estate transaction, a contract is deemed ‘under contract’ once both the buyer and seller have agreed to the terms and conditions specified in the contract, have both signed the contract, and the buyer has deposited the earnest money,” Rizzi says. 

Earnest money is usually deposited within 48 hours of the contract’s acceptance and the amount varies by state. In Arizona, where Rizzi works, it’s typically 2 to 3% of the home’s sale price. That amount is credited toward the buyer’s down payment at closing. 

“The earnest money shows good faith from the buyer to the seller, confirming the buyer’s genuine interest in purchasing the property,” Rizzi explains. 

Earnest money can also be forfeited if a buyer backs out too far along in the process.

What happens after a house is under contract?

There are lots of boxes to check before a home sale is final. As the buyer, that means scheduling inspections and getting your financing buttoned up. 

“If you are the buyer that is under contract, do as much due-diligence on the property, the location, and whatever else is important to you in the first 10 days after contract acceptance,” Rizzi says. 

That means scheduling inspections and reviewing the results, looking at disclosures about the property, and getting top of your financing. 

“If you will be obtaining a mortgage to purchase the property, you will need to continue working with your lender to complete the application process and finalize the financing,” Rizzi says. 

Finally, you can start thinking about your closing schedule, to make sure you’ll have everything in order by the time you’re scheduled to sign off and get your keys. 

Rod Barr, a broker with Better Homes and Gardens Real Estate Lake Realty, cautions buyers not to jeopardize the sale of the home. 

“Be patient and do not make any large purchases via credit of any type,” he says. Doing so can impact your financing options.

As a seller, you’ll be doing a bit of a dance, completing the work necessary to sell the home while keeping in mind the deal could fall through. That means keeping your home in showing order so you can entertain back-up offers, while allowing for home inspections and making repairs based on those inspections. Like the buyer, you’ll be in close contact with your agent as the sale progresses and you’ll likely be scheduling the closing. 

Barr also points out this is the point at which you’re scheduling movers and packing. It’s also when Barr notes you’re likely “getting anxious.”

Eventually, the status of the home will move from under contract to pending. 

Rizzi says that in Arizona, pending and under contract are interchangeable terms, but in other parts of the country, they have different meanings. 

“Under contract typically refers to a contract that has been accepted by both the buyer and the seller, but the transaction has not yet closed,” Rizzi says. “Pending usually indicates that all contingencies in the contract have been met and the transaction is in the final stages of closing.”

Submitting a Back-Up Offer

When a home is under contract, it’s still in the early stages of the sale. Lots of things need to happen to make the sale final, but that also means the deal could fall through at any point along the way. 

When a home is under contract, it means the seller has accepted an offer from a buyer, but Rizzi points out that a seller can decide to continue showing a property that is under contract as a way to get back-up offers should the house end up back on the market. 

“Sometimes, home sales fall through due to issues with financing, inspections, cold feet, or other issues. If this happens, the seller may return the home to the market, giving you the opportunity to make an offer,” Rizzi explains. 

If you like a home that is already under contract, you can still submit your back-up offer, which the buyer could consider next.

“If the primary contract does fall through, the seller can accept the back-up offer and proceed with the transaction,” Rizzi says. “However, the seller is not obligated to accept the back-up offer, and they may choose to re-list the property for sale or negotiate a new contract with the buyer.”

Even if you don’t think there’s a great chance you’ll get a home that’s under contract, it doesn’t hurt to go to a viewing anyway. Rizzi says seeing homes that are under contract can provide valuable information about the kinds of features and amenities popular in your area. 

Under Contract Doesn’t Mean Unavailable

A property search site may show that a home is under-contract, but the info isn’t necessarily up-to-date. Rizzi says it’s best to work with a real estate agent to get status info on a home you’re interested in.  

“Real estate agents have the most direct access to the under-contract status of a home as compared to the general public,” she says. “Their access to the multiple listing service (MLS) grants them access to a comprehensive database including information on properties that are not yet available to the general public but are coming soon, and those available on the market (active), under contract, contingent on buyer sale, pending, or sold.”

And in the meantime, the seller could be entertaining back-up offers.

No matter which side of the transaction you’re on, Barr says you and your real estate agent should just stay calm. 

“If the agent becomes nervous, aggressive, and so on, most likely whom they are representing will become like-minded,” he says.