Buying or selling a home can be complex, especially when understanding the terminology used throughout the transaction process. You’ll often encounter two key terms: “under contract” and “pending.” These terms can be confusing because they seem similar but refer to different stages in a real estate deal. So, what does “under contract” mean in real estate, and how is it different from “pending”? Let’s break it down.
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Table of Contents
Understanding ‘Under Contract’
What Does Under Contract Mean in Real Estate?
In real estate, when a property is described as “under contract,” it means the seller has accepted an offer from a buyer, and both parties have signed a contract outlining the terms of the sale. However, the sale isn’t final yet. Certain conditions or contingencies, such as financing approval or a satisfactory home inspection, must be met before the deal closes.
What Does ‘Active Under Contract’ Mean?
Sometimes, you may see the status “Active Under Contract.” This means the seller accepts backup offers while the property is under contract if the current deal falls through. It indicates that contingencies are still being resolved, and there’s a possibility the deal may not close.
Key Elements of a Real Estate Contract
- Buyer and Seller Obligations: The buyer and seller are bound by the contract’s terms. The buyer may need to secure financing, schedule inspections, and ensure an appraisal is done. The seller, in turn, agrees not to entertain new offers and must fulfill obligations such as repairs or providing legal documents.
- Contingencies: These conditions must be satisfied for the sale and the earnest money to be released. Common contingencies include the buyer’s ability to secure a mortgage, the outcome of a home inspection, and the property’s appraisal value.
- Timeline: The “under contract” phase has a specified period during which these conditions must be met. This duration can vary based on factors like the complexity of the contingencies and the efficiency of the process.
Obligations of the Buyer and Seller
Once a property is under contract, the buyer and seller have specific obligations. The buyer is typically responsible for obtaining financing, completing inspections, and fulfilling any agreed-upon contingencies. On the other hand, the seller is responsible for ensuring the property is in the agreed-upon condition and preparing the necessary documents for the closing.
Factors Affecting the Duration of the Under-Contract Period
The length of time a property remains under contract can vary significantly depending on several factors, including:
- Contingencies: The number and complexity of contingencies can extend the under-contract period.
- Financing Approval: Financing approval is essential for a successful home sale. The time it takes for the buyer to secure financing can impact the timeline.
- Inspections are a critical part of the home-buying process to ensure the property is in good condition. Any issues identified during inspections may require additional negotiations or repairs.
- Negotiations: Counteroffers or changes to the contract can prolong the process.
- Market Conditions: The overall real estate market can influence how quickly a deal closes.
Understanding ‘Pending’
What Is ‘Pending’ in Real Estate?
When a property is labeled as “pending,” all contingencies have been cleared, and the sale is on track to close. The sale is almost certain to proceed at this stage, barring any unforeseen issues. Essentially, the pending status indicates that the deal has moved past the “under contract” phase, and both parties are simply waiting for the final steps, such as a closing day.
Differences Between “Pending” and “Under Contract”
- Binding Agreement: A binding agreement is crucial when the property is listed as under contract. “Under contract” signifies a legally binding agreement, while “pending” simply indicates that the property is being sold.
- Status: A property listed as “pending” may still be negotiating terms with potential buyers, while a property under contract has a specific agreement in place.
- Timeline: A property under contract typically has a more defined timeline leading to closing, whereas a pending property’s timeline may be less certain.
Common Reasons for a Property to Be “Pending”
- Negotiations: Buyers and sellers may still be discussing terms and conditions.
- Contingencies: The property may be subject to contingencies that must be fulfilled before the house under contract can proceed.
- Financing Approval: The buyer may be awaiting financing approval.
When Does “Pending” Become “Under Contract”?
A property typically becomes “under contract” when the buyer and seller sign a mutually agreed-upon purchase agreement. This agreement outlines the terms of the sale and creates a legally binding commitment.
Under Contract vs. Pending
To help clarify the differences between these two important real estate terms, let’s look at a side-by-side comparison:
| Aspect | Under Contract | Pending |
|---|---|---|
| Stage of transaction | Stage of transaction | Later stage, closer to closing |
| Contingencies | Often still in place | Most or all have been met |
| Likelihood of closing | Less certain | More certain |
| Ability to accept other offers | May be able to accept backup offers | Typically not accepting new offers |
| Timeframe | Earlier in the process | Closer to the closing date |
When to Use Each Term
- Use “under contract” when a property has a signed contract but is not yet guaranteed to close.
- Use “pending” when a property has cleared contingencies and is moving toward closing.
Common Contingencies in Real Estate Transactions
Contingencies are essential clauses in real estate contracts that provide protection for both buyers and sellers. They act as safeguards, allowing parties to terminate the agreement under certain circumstances. For instance, common contingencies may include financing, inspection, appraisal, or the sale of a previous property.
While they can sometimes delay the closing process, contingencies help ensure a fair and equitable transaction for everyone involved in the pending sale. Understanding these contingencies is crucial for both buyers and sellers, as they can impact the under-contract period significantly. For a deeper dive into what contingencies mean in real estate, check out our article on Understanding Contingent Mean in Real Estate: A Comprehensive Guide for Buyers and Sellers.
Types of Contingencies
- Financing Contingency:
- This is one of the most common contingencies. It allows the buyer to terminate the contract if they cannot secure financing for the purchase.
- This protects the buyer from being obligated to purchase a property they can’t afford.
- Inspection Contingency:
- This contingency permits the buyer to conduct inspections of the property to identify any potential defects or issues.
- If significant problems are discovered, the buyer may be able to terminate the contract or negotiate a price reduction.
- Appraisal Contingency:
- This contingency protects the buyer if the appraised value of the property is significantly lower than the agreed-upon sale price.
- If the appraisal comes in below the purchase price, the buyer may be able to renegotiate the terms or terminate the contract.
- Sale of Previous Property Contingency:
- This contingency is often used by buyers who need to sell their current home before purchasing their dream home.
- It allows the buyer to terminate the contract if they are unable to sell their existing property within a specified timeframe.
- Insurance Contingency: An insurance contingency is often necessary to protect the buyer during the home buying process.
- This contingency ensures that the buyer can obtain homeowner’s insurance for the property.
- If the buyer is unable to secure insurance, they may be able to terminate the contract.
Impact of Contingencies on the Under-Contract Period
Contingencies can significantly impact the timeline of a real estate transaction. If a contingency is not met, the contract may be terminated, leading to delays or even the cancellation of the sale. It’s essential for both buyers and sellers to understand the potential implications of contingencies and to plan accordingly.
Additional Considerations
- Negotiating Contingencies: Buyers and sellers can often negotiate the terms of contingencies to ensure a fair and balanced agreement.
- Waiving Contingencies: In some cases, buyers may be willing to waive certain contingencies, such as the inspection contingency, to strengthen their offer.
- Timeframes: Establishing clear timeframes for fulfilling contingencies is important to avoid unnecessary delays.
Buyers and sellers can make informed decisions and navigate the process more confidently by understanding the various types of contingencies and their potential impact on the real estate transaction.
Factors Affecting the Under-Contract Period
In addition to contingencies, several other factors can influence the duration of the house under the contract period.
- Financing Approval: The time it takes for the buyer to obtain financing approval.
- Property Inspections: Any issues identified during inspections may require additional negotiations or repairs.
- Negotiations: Counteroffers or changes to the contract can extend the timeline.
- Appraisal Process: The time it takes to complete a professional appraisal.
Tips for Buyers and Sellers During the Under-Contract Period
- Communicate Regularly: Maintain open and honest communication with your real estate agent and the other party involved.
- Be Patient: Being patient is crucial during home buying, especially when waiting for contingencies to be resolved. The under-contract period can sometimes be lengthy, so it’s important to be patient and understanding.
- Seek Legal Advice: Consult with a real estate attorney to protect your rights and interests.
- Have a Contingency Plan: Be prepared for potential issues or delays during home-buying.
FAQs: ‘Under Contract’ and ‘Pending’ Status
Can a property under contract still be shown to other buyers?
Generally, no. Once a property is under contract, it is typically off the market. However, there may be exceptions in certain circumstances, such as if the contract is contingent upon the sale of the buyer’s current property.
What happens if the buyer’s financing falls through?
If the buyer’s financing falls through, the contract may be terminated. However, the specific terms of the financing contingency will determine the outcome.
Can a seller accept another offer while the property is under contract?
Typically, no. Once a contract is signed, the seller must sell the property to the buyer unless there is a specific clause allowing for multiple offers.
How long does a property typically stay under contract?
The duration of the under-contract period can vary significantly, but it typically ranges from a few weeks to a few months.
What contingencies might allow a contract to be terminated?
Common contingencies that may allow a contract to be terminated include financing contingencies, inspection contingencies, appraisal contingencies, and sale of previous property contingencies.
How often do deals fall through after a property goes pending?
The rate at which deals fall through after a property goes pending can vary depending on market conditions, the specific terms of the contract, and other factors. However, it’s common for deals to fall through due to unforeseen circumstances.
Conclusion
Understanding the difference between “under contract” and “pending” is crucial for anyone involved in a real estate transaction. By knowing the status of a property, buyers and sellers can make informed decisions and manage their expectations. Remember, patience, communication, and legal advice are essential during the under-contract period.
