The process of buying a home can feel overwhelming. First, you must decide on the all-important location, location, location, and then you must peruse active listings for available options that suit both your needs and your wants. In active markets, that process can become incredibly frustrating; a home’s availability can change with lightning speed, and each opportunity seldom arrives twice. And, these steps only represent the very beginning of your home search.
Luckily, a good real estate agent will help you navigate these challenges, but for the best chance of securing your dream home in your ideal location, it helps to attain a working knowledge of the sales process. A lot can happen between a buyer’s offer and the seller handing over the keys, and as you start to look through listings, one common question may arise when listings show up as “under contract.” What, you may say to yourself, does “under contract” mean exactly? So, let’s demystify this key stage of the process because after a buyer puts in an offer on a house, they will need to sign a contract, essentially an agreement between the buyer and seller on the terms of the sale.
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What Does It Mean When a House for Sale Is Under Contract?
Once a buyer finds an active listing that interests them, they make an offer. If that offer appeals to the seller and they accept it, the listing status changes from active to under contract, and they sign the initial paperwork, a purchase agreement, that lays out the terms of how the transaction will proceed.
Now, that doesn’t mean other offers can’t still be made on the property. It just means that the backup offer waits next in line for consideration if the current contract falls through for any reason. And, that happens more often than you might think because, while a contract between the two parties has been signed, the sale is still far from final.
Many times, the buyer still needs to secure financing, which can become a hurdle even with preapproval for a mortgage. Also, at this stage, the prospective buyer will, in most cases, add an appraisal and home inspection as contingencies in the contract. That way, if the inspector finds an issue that causes concern for the buyer (such as a roof that needs replacing, a faulty boiler, or septic issues), they can ask for an adjustment in the sale price to address it, request some other form of compensation to take care of it themselves after the sale, or withdraw their offer entirely.
But, just because they ask for a repair doesn’t mean they’ll get it. The seller can come back with a counteroffer or flat-out deny the request, forcing the buyer to decide whether they will still purchase the property anyway.
Throughout this negotiation process, the seller could also withdraw from the contract. Perhaps the financing situation doesn’t sit well with them, the timeline doesn’t look plausible, or the work the buyer requests on the property isn’t something they’re prepared to do.
In either case, if one of the buyer’s or seller’s contingencies aren’t met, the property returns to the market. Again, it’s not uncommon, and all that means is that the buyer and seller couldn’t agree upon some aspect of the sale.
What Is the Difference Between Pending and Under Contract in Real Estate?
“Pending” is the next step in the sales process. At this stage, all of the “under contract” contingencies have been met, and both the buyer and the seller feel satisfied with the renegotiated terms of the contract. Both parties officially agreed upon any additional conditions, such as repairs needed before the buyer takes possession or an adjustment in the sale price, and the buyer has secured their financing. Essentially, this transition begins the “green light” stage, and the sale of the property is ready to proceed, or “close.”
Understanding Real Estate Contracts
While the terminology used above can differ somewhat between regions throughout the US, any real estate purchase agreement should include certain universal provisions.
In addition to the contingencies already discussed (appraisal, inspection), every contract needs to spell out conditions like the settlement date and possession date. It’s crucial to clearly delineate when the property will change hands, both legally and physically, so no one is left out in the cold. Additionally, the contract will address questions about who will pay the closing costs: the buyer, seller, or both. It will likewise detail how the title transfer will take place, the amount of earnest money a buyer will put down up front to demonstrate their commitment to the sale, and whether any fixtures or appliances will go with the seller (it’s actually illegal for the seller to remove any fixtures unless stated in the contract). Escrow, delivery of documentation releasing the home from certain contingencies (such as that faulty boiler replaced on such and such a date), and the inclusion of a home warranty, go into the paperwork as well.
Typically, your real estate agent will draw up the contract based on a template, but both parties will bring in a real estate attorney well-versed in the legal process from offer to close. Not only will they help craft a contract that’s fair to both parties, they’ll also help negotiate, perform title searches, and prepare the closing documents.
Pro Tip: Never sign a contract until your lawyer okays it first.
Now, do your homework: To see what a real estate contract looks like, read through some sample templates online, such as the ones posted by the U.S. Securities and Exchange Commission and the U.S. Department of the Treasury, or find a template created for and tailored to the laws of your home state.
Ready to Buy a Home?
If you still feel overwhelmed, you’re not alone. Buying a home is a huge and sometimes daunting undertaking, but it doesn’t have to be. The Nav Agency's dedicated agents are ready to help you procure your luxury dream home. We offer a personalized, one-on-one experience, and can’t wait to guide you through the real estate process. Contact the Nav Agency to start on your home-buying journey today.
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– Written by AK
