What Does Under Contract Mean? Can I Still Make an Offer?
Imagine finding your dream home only to discover it’s listed as “under contract.” If you plan on making an offer but fear it’s too late, we have good news for you: “Under contract” does not mean it’s a done deal. There are still many hurdles that the real estate transaction has to clear before it’s set in stone, and the seller is often still accepting backup offers.
Let’s explore what “under contract” really means, how it differs from “active under contract” and “pending” statuses, and what your options are.
What Does “Under Contract” Mean?
In a real estate listing, “under contract” means that the home seller and prospective buyer have agreed on a purchase price. In other words, the seller has accepted a buyer’s offer and is one step closer to selling the home. However, these contracts fall through all the time, and while it may be bad karma to wish that the current contract for your dream house doesn’t work out, it’s possible.
Common Contingencies That Could Impact a Home Under Contract
The homebuying process is like a machine with dozens of cogs. In a real estate transaction, contingencies make up many of these cogs. If one cog is out of sync, it can stop the sale.
Contingencies are contract terms that must be met before a sale can be completed. When you make a formal offer, home sale contingencies provide a way to back out of a real estate contract should a problem with finances or the home’s condition arise. Without these contingencies in place, the homebuyer risks losing their earnest money deposit, which is often 2-3% of the sale price.
Here are four common contingencies that can protect prospective homeowners:
- Home Sale Contingency: If the buyer is selling their current home and using the profit to pay for a new one, then the deal only goes through if they can pull off a simultaneous buy and sell. A home sale contingency typically gives the buyer 30 to 90 days to sell their home so they can use the funds to pay for the down payment and closing costs on their new house. If the buyer’s financing is tied to selling a home they can’t sell, the deal could fall through.
- Financing Contingency: This protects the buyer if they cannot secure the mortgage loan needed for a new home without a specified time frame.
- Appraisal Contingency: Requires that the home appraisal is for what the buyer agreed to pay for it. If the appraisal comes in low, the buyer has leverage when negotiating with the seller.
- Inspection Contingency: A home inspection assesses a house’s condition and identifies potential issues that could disrupt the homebuying process.
Other Reasons a Sale Could Fall Through
Even if a transaction satisfies all the contingencies, there are two other common reasons a real estate transaction might fail to close.
Lack of a Clean Title
A house’s title includes specifics about who owns the home and if there are any liens or disputes regarding ownership. More than one-third of all title searches reveal an issue that needs to be fixed before closing.
Some common issues include:
- Errors or omissions in the deed
- Ownership dispute due to a divorce
- Undisclosed heirs in a conflicting will
- The current homeowner is behind on taxes
- A contractor has a lien on the home for unpaid work completed
If you’re the prospective buyer and purchase a home with an unclean title, you take on all that baggage. For example, if the previous homeowner still owes a contractor $25,000 for a kitchen remodel, you would inherit that debt.
Buyer or Seller Breaches the Contract
Sometimes a buyer or seller decides to break the real estate contract at the last minute. This can happen for several reasons, like a death in the family, the need to suddenly relocate for work, divorce, or cold feet.
If one party breaches the contract, things can get messy. When a buyer backs out, they’re typically giving up their earnest money and may be sued for damages by the seller. Conversely, if the seller backs out, the buyer may sue for damages or even force the sale to continue. Neither situation is ideal, but it does happen.
Under Contract vs. Active Under Contract
“Under contract” and “active under contract” are pretty similar. The most significant difference is that with an “active under contract” status, the seller has accepted a buyer’s offer but is also accepting offers from other prospective buyers.
Sometimes a seller does this because they’re being extra cautious, but other times they have reason to believe that a potential sale won’t go through. Either way, a home with an “active under contract” status basically emphasizes that the seller is still interested in receiving offers. If this is the case, you can contact the seller’s agent (or the seller if they don’t have one) to determine the asking price to get you to the top of their backup offer list.
What Does a Pending Status Mean?
If you see a ”pending” status on a listing service, the seller has accepted an offer, and the contingencies were met. Pending homes are far more likely to result in a completed transaction than those that are under contract, but things can still happen.
Not all "pending” statuses are created equal. In fact, there are three different types you may encounter:
- “Pending: Taking Backups”: Even though they have a sale pending, the seller is still accepting backup offers in case the deal falls through.
- “Pending Short-Sale”: The home is getting sold via a short sale with the mortgage holder.
- “Pending: More Than 4 Months”: Either the transaction is taking longer than anticipated, or the seller’s real estate agent forgot to update the home’s status.
What Should You Do If Your Dream Home Is Under Contract?
Is the home you want under contract? Take action!
Contact the seller’s real estate agent to see if they will accept backup offers. Also, ask what the seller values most so you can tailor your offer based on what they want. Another buyer has already beaten you to the punch, so you should lead with your best offer and cross your fingers.
Also, keep in mind that most real estate contracts go through. According to a 2022 Confidence Index Survey conducted by the National Association of Realtors, only about 7% of real estate contracts get terminated before closing. If you’re putting all of your focus on a home that’s already under contract, you could be missing out on other amazing deals. However, if you believe you have found the one, it may be worth the risk of waiting.
How Aalto Can Help
Closing on your dream home isn’t always easy, especially if it’s already under contract.
The real estate process is daunting by design, but it doesn’t have to be. At Aalto, we’re dedicated to helping you buy or sell your home by giving you access to as much information as we can. Our self-service real estate platform connects buyers directly with sellers, providing more transparency, less stress, and greater savings than traditional real estate methods.
Are you ready to take control of your next real estate transaction? Sign up with Aalto today!
Aalto is a real estate broker licensed by the State of California, License #02062727 and abides by Equal Housing Opportunity laws. This article has been prepared solely for information purposes only. The information herein is based on information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy of the information. Aalto disclaims any and all liability relating to this article.