What does under contract mean in real estate

What Does Under Contract Mean in Real Estate?

June 4, 2021 | Buying a Home | By: The Goodhart Group

In our local market these days, homes for sale seem to go “under contract” in a matter of days. But what exactly does under contract mean in real estate? Our clients often ask us this question, specifically wanting to know if they can still make an offer on a home that’s under contract. Read on for our explanation.

What does under contract mean in real estate?

An under contract real estate listing is one where the buyer and the seller have agreed to terms (such as price and closing date) and executed a contract, but the transaction has not yet gone to closing.

There may or may not be contingencies attached to the contract. Contingencies attached to the offer that must be cleared before closing often include financing, a home inspection, home appraisal, and in some cases, the sale of the buyer’s current home. Once all of the contingencies are met, the status of the transaction will change to “pending.”

There are three different categories of “under contract” properties:

  • With kick out. This clause says the seller can continue to market the house even under a contingent contract. The current offer remains on the table, but if the seller receives a non-contingent offer they want to accept, they can inform you of the new offer. As the original offer, you have an agreed-upon time period to decide if (1) you’ll cancel your contract or (2) remove your contingencies and proceed with the home sale.
  • Without a kick out. This means the seller cannot accept any other offers and must proceed with yours.
  • No contingencies.

Can you still make an offer on a home that’s under contract?

A house under contract could potentially return to the market — or an “active” status — due to hiccups with any of the contingencies. Examples include a buyer’s financing falling through or a home inspection report that can’t be negotiated.

Since deals do fall apart, seller’s agents will sometimes take backup offers. You can still make an offer on a property that is under contract.

If your offer is accepted and the first deal falls through, you will be in a position to purchase the home. While it’s unlikely, the home could potentially become yours. As always, the odds of this happening depend on many factors, perhaps the most important being our local real estate market. The hotter the market, the less likely a deal is to fall through.

The Bottom Line

An under contract home means that both parties have agreed to the terms of a deal, but it has not yet gone to settlement. There are various types of under contract homes. Speak with your Realtor to determine if it makes sense to make an offer on a home that’s under contract.

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