The Ultimate Guide to Houses Under Contract

Introduction

Are you a first-time home buyer looking for a house a purchase?
Are you browsing real estate listings for a house?
If yes, then you have probably noticed that the houses listed on the real estate listings have one of the statuses below:

1. Active
2. Under Contract
3. Pending
4. Sold
5. Withdrawn
6. Expired
7. Back on Market
8. Coming Soon

In this post, we’ll focus on the “Under Contract” status. We’ll discuss what it means for a house to be Under Contract. And if you’re already Under Contract, what you need to know to navigate this stage in the home-buying process.

What Does it Mean when A House Is Under Contract?

When a house is under contract, it means that:

1. A buyer has made an offer (on the house) to the seller.
2. The seller has accepted the offer.
3. and both buyer and seller have entered into a legally binding agreement to that effect.

It is important to note that a house under contract does not mean that the sale is final. If it was final, the status would be “Sold” not “Under Contract.

Why is the Under Contract Status Legally Binding to the Buyer and the Seller?

Under Contract in real estate is more than a word. It is not enough for a buyer to make a verbal offer and for the seller to accept the verbal offer. To make it official, the buyer and the seller sign a contract.
The contract specifies:

1. All aspects of the sale agreed upon by both parties.
2. The rights and obligations of the buyer.
3. The rights and obligations of the seller.

This contract is often referred to as a purchase contract, a sales contract, or an agreement of sale. It is often prepared by a real estate agent or an attorney or a title company. Irrespective of who prepares the contract, it is neither legally binding nor legally enforceable until the buyer and the seller sign the contract.

Are you a first-time home buyer currently under contract? Please note that although the contract is legally binding and enforceable, you do not own the house until you receive the deed for the house. Please note that real estate laws and regulations may vary by jurisdiction.

What Specifics Are Included in The Contract?

Please note that this list is meant to be directive, not exhaustive. This is because a buyer and seller can agree on a few mundane or out of the ordinary items. There are however some elements that are considered standard. These standard elements are typically included in real estate contracts.

Standard Elements in a Real Estate Contract

• Identification of parties:
  • Identifies the buyer and the seller.
  • Legal names of the buyer and the seller.
  • Contact information of the buyer and the seller.
    
• Description of the property:
  • Address of the property.
  • Legal description of the property.
  • Lot size.
  • Other relevant identifying information.
    
• Purchase price
  • Agreed upon purchase price.
  • Earnest money deposit.
    
• Financing terms
  • Timeline the buyer must secure financing.
    
• Contingencies
  • Home inspection contingencies.
  • Appraisal contingencies.
  • Financing contingencies.
    
• Closing
  • Estimated closing date. This is when the seller legally transfers ownership of the house to the buyer.
  • Where the sale will be closed.
    
• Title and deed provisions
  • Type of deed to be used for the transfer.
  • How the title will be transferred to the buyer.
    
• Default and remedies
  • Consequences of default by the buyer or seller.
  • Remedies should a buyer or seller default.
    
• Signatures
  • Dated signature of the buyer.
  • Dated signature of the seller.

Non-standard Elements in a Real Estate Contract

• Home warranty
  • Warranties for any property defects.
    
• Seller concessions
  • Seller’s contribution towards certain costs or fees on behalf of the buyer.
    
• Prorations
  • How existing property costs will be pro-rated (if applicable) between the buyer and the seller. Examples: Property Tax, HOA fees.
    
• Repairs and improvements
  • Repairs and improvements the seller needs to make.
  • Agreed upon timeline for the repairs and improvements.
    
• Attorney review and modification
  • Timeline the attorney of the buyer must review, modify, approve or disapprove the contract.
    
• Other

What Does a House Under Contract Mean for Me as a Buyer?

What a house under contract means for you as a first-time home buyer depends on if:

1. You are the buyer under contract.
2. You are not the buyer under contract but interested in a house that is under contract.

You’re the Buyer Under Contract

Timing is usually of the essence once you’re Under Contract. I recommend you:

1. Read and digest the contract in its entirety.
2. Take special note of all the elements (standard & non-standard) listed in the contract. Pay special attention to any timelines and the stated contract period.
3. If you’re not familiar with or have little understanding of what the contract requires of you, work with a qualified real estate professional. They will be able to guide you through the process and help you understand the terms of the contract.
4. Conduct a thorough home inspection and review the title report to identify any issues that may need to be addressed before closing.
5. Communicate any concerns or issues with the seller in a timely manner as specified in the contract.
6. Work closely with your lender or mortgage broke to ensure you secure financing as early as possible.

You’re not the Buyer Under Contract

Any property listed as “Under Contract” on a real estate listing is off the market. You might ask why the property still shows up on a real estate listing if it is considered off the market?

What is important is not if a property shows up on real estate listings. What is important is the listed status of the property. Any property listed as “Under Contract” is off the market and no longer available for buyers to make offers.

You can attempt to make an offer, but a seller is obligated to refrain from accepting new offers on a house that is under contract. It doesn’t matter how good or how better your offer is to that of the buyer under contract. A breach of the contract by the seller can result in a lawsuit.

What Should I Do if a House I Love is Already Under Contract?

There are two things you can do if you come across a house that you like but is already under contract:

1. Continue your search.
2. Keep an eye on the house.

Why Should I Keep an Eye on a House Under Contract?

You’d want to keep an eye on a house you love but already under contract because it can come back on the market. As such, you’ll want to be ready with a potential backup offer should the house come back on the market.

As noted previously, a house that is under contract does not mean it has sold. It merely means there is an existing contract in place.

Typically, there are contingencies specified in the contract that must be met or satisfied for the contract to proceed to closing. Failure to meet or adhere to the contingencies leaves room for the buyer or the seller to terminate the contract.

If the contract is terminated by either the buyer or the seller, the house will change status from Under Contract to any of the following:

1. Withdrawn: If the seller is no longer keen on selling the property
   • While the seller is no longer keen on selling the property, this does not prevent you from making an offer. You just might make an offer tempting enough for the buyer to decide to bring the house back on the market. Why not try your luck?
2. Back on Market / Active: if the seller is keen on selling the property.
   • Once the status reverts to back on market or active, the seller can once again entertain offers from other buyers.
   • I recommend making an offer as soon as possible if you are still interested in purchasing the house.

Conclusion

When a house is Under Contract, it means that the seller has accepted a buyer’s offer, that both buyer and seller have entered into a legally binding agreement, that the house is no longer available for other buyers to make offers. The contract will govern how the house is transacted. Should a contract fall through due to unmet or unsatisfied contingencies, the seller or the buyer can terminate the contract. Upon termination, the status of the house will revert to active or withdrawn.

Sincerely,

Your Mortgage Minister