With so many popular terms in the real estate industry how is the consumer supposed to know what they all mean? Mortgage, appraisal, earnest money, due diligence, the list is truly endless. One of the more popular terms you will hear REALTORS® and lenders use is the term “under contract”. But what does that really mean?
There are many times where a buyer will look at real estate listings and find one that really grabs their attention. It has everything they have been looking for, but it is listed as either “Pending” or “Under Contract”. Buyers who have no idea what those terms mean usually find themselves feeling a bit uncertain. Many ask “is it sold?” “can I still buy it?”, and unfortunately the answer is not exactly transparent. To fully understand this we have to deep-dive into the strategies of negotiating a real estate transaction. Our guide below will help you understand what this all means and show you how we can help you through these situations.
Under Contract Listings Explained
The common understanding of “under contract” would leave most assuming that the home is sold and no longer available. In the real estate world it truly means something very different.
A house that is listed as “pending” or “under contract” in real estate terms indicates that the seller has found a buyer for the house, and that that buyer and seller have come to an agreement on some of the terms for the buyer to purchase the home.
An obvious question might be, if an agreement has already been made between buyers and sellers, why are houses listed as under contract still available for viewing to prospective customers?
This is because, despite the fact these properties are under contract, there is still a possibility that the deal may fall through, thereby giving another interested buyer an opportunity to seal the deal.
Under contract refers to a status in which the seller of the property has an agreement with a potential buyer, but the house is technically still advertised on the market because the agreement isn’t finalized yet. There are still contingencies that will need to be met before the property can be considered sold.
Contingencies
That brings us to the wonderful world of contingencies. Contingencies are certain conditions that have to be met or completed/agreed upon before a real estate transaction can be closed. Below is a list of the most common contingencies you will find in a standard residential sales agreement:
Sales Contingencies – this contingencies states that the offer to buy a home will only close if the buyer is able to sell their currently property. These are quite common in the real estate industry and sometimes can include the sale of multiple properties in order to purchase one.
Financial Contingencies – these are measures taken to prove to the seller that a buyer is able to purchase the property and has been approved for the mortgage needed to acquire the property.
Inspection Contingencies – this is a time period determined by the offer to purchase for the buyer to have the home and property inspected by a professional home inspector. This is also a time for a buyer to negotiate repairs that may be needed on the home.
Appraisal Contingencies – this is the agreement between the buyer and the seller that the home will be appraised, and that the value determined by the appraisal must be the purchase price or higher. If the appraisal comes back below the value of the purchase price in the sales agreement a new price may need to be negotiated or the transaction may need to be canceled.
Contingent VS Pending VS Under Contract VS In Escrow
Essentially these all mean the same thing. These titles are usually determined by the Multiple Listing Service (MLS).
We can assure you that “contingent” and “pending,” do in fact mean the same things as under contract.
In the past, a “contingent” listing used to specifically mean that the buyer still had to sell their home (or homes) in order to close the deal. Nowadays, though, it is no longer limited to only this kind of contingency (sales contingency) and can imply other forms too. You may also see a term “Contingent Bumpable”. In our MLS system the “Contingent Bumpable” means the seller is still accepting offers and that their current offer can be “bumped” out under certain circumstances.
At any rate, a house listed as “under contract”, “contingent”, or “pending”, indicates that the house has a potential buyer with an agreement in place.
Under Contract Summary
Closing a transaction in the real estate world requires a few more steps than just writing an offer and closing the deal. To just name a few, there is the listing period, showings, negotiating, accepting an offer, clearing all the contingencies and then finally closing escrow.
Houses listed as pending or under contract have only made it through the initial offer being accepted and there is still a lot of work to be done. Houses in this phase of the process can still fall through and it happens often.
If you find your perfect home and it is listed as pending don’t give up. Contact your broker and see if there is a chance to put in a backup offer on the property. You never know what might happen!