The difference between pending and under contract in real estate
It’s hard when you find your dream home only to realize it’s under contract. A lot of homebuyers find themselves in this situation since the market is so fast-paced.
You may be surprised to learn that not all is not lost when a home goes under contract. Although a buyer and seller have formally entered a purchase agreement, the sale isn’t final and it depends on a few factors. Both parties still need to meet certain requirements before they can call the sale final.
If they can’t meet any of these requirements, the purchase could fall through and the home would go back on the market. Keep reading to understand what it actually means when a home is under contract and how you can improve your chances of purchasing one.
And if you’re ready to buy a home you love, Flyhomes Agents can help you make more competitive offers so you can finally stop bidding and start living.
- Under contract does not mean the property has officially sold
- There are four common contingencies that determine if the home sale moves forward
- You can still put an offer on a home that’s under contract
- A home that’s under contract means that an offer has been accepted
What does under contract mean?
When a deal is under contract the sale is not yet final. The seller has accepted a buyer’s offer but a lot of other requirements need to be met before the transaction closes. After the seller accepts the buyer’s offer, they both sign a purchase agreement that legally binds buyer and seller to the deal. Once they both sign the contract, it triggers a process that both the buyer and seller must follow within a set period of time before the sale closes. So really, when a house goes under contract, it’s just the beginning of the sale.
In the purchase agreement you will find common contingencies, earnest money deposit amounts, and the property’s sale price, among other important information about the deal. The items mentioned in the purchase agreement define what each person has to do during the closing process, which lasts four to six weeks.
Between when you sign the purcahse agreement to closing day, the buyer must deposit earnest money into an escrow account, apply for a mortgage, and purchase homeowners’s insurance. The home will also likely go through a title search, home inspection, and appraisal.
Until all of these tasks are done, the home is still under contract and not yet sold.
What is the process after an offer is accepted?
- The seller accepts a buyer’s offer, including all contingencies and other contractual obligations and the offer becomes a purchase agreement.
- Both the buyer and seller begin work to meet contingencies like finishing inspections and securing a mortgage loan.
- The buyer and seller put funds like earnest money, closing costs, and other fees into an escrow account.
- The buyer and their agent check the property for liens and other legal red flags and clears them with the owner.
- The escrow account is liquidated and closed on closing day.
- The buyer takes the title and becomes the legal owner.
What does pending mean?
Once this process is done, the home sale enters the pending stage, when all contingencies are cleared and the home is near closing. As you can see, there are several steps that need to take place before the seller transfers ownership to the buyer. Should there be any missteps in the closing process, you may still have a chance at buying the property.
What are contingencies?
The terms of the sale that both a buyer and seller outline in a purchase agreement will reflect what’s most important to them about the purchase. Some of the most common contingencies you’ll find can be categorized in the following ways:
Financial contingencies are added so that the buyer can walk away without losing their earnest money if they can’t finance the home. If for some reason the buyer can’t get a mortgage, they can back out of the deal with no penalty.
Appraisal contingencies demand that the property’s appraisal is at least as much as the purchase price. If the appraisal comes in lower than the agreed sale price, the buyer can try to renegotiate. Should the seller refuse to lower their price, the offer can be canceled without penalty.
Inspection contingencies require a professional home, pest, and/or sewer inspector to assess the property. Depending on what the inspector finds, the buyer can negotiate repairs with the seller. In some cases, expensive issues that neither seller nor buyer is willing to pay for could lead to the contract ending.
Sales contingencies are put in place by the buyer so they can sell their current home and use the proceeds to buy the next one. It’s not uncommon for real estate transactions to be contingent upon the sale of more than one house.
Real estate contracts fall through for a variety of reasons, not just failure to meet contingencies. Although it’s uncommon, home sales can fall through as late as closing day. This happens when the buyer doesn’t secure funds or the seller is unable to legally transfer ownership.
If you’ve had your eye on a home that’s under contract, here’s how you can strengthen your chances of purchasing it if the deal falls through.
How to buy a house under contract
A seller can’t accept a second offer after they’ve already accepted one—no matter how good it is.. But they can still view offers and keep them as back up offers if the offer they accepted falls through.
You can submit an offer on a property that’s under contract with the help of your real estate agent. Although chances are slim—less than 4% to be exact—you might still be able to buy a house that’s already under contract.
Put your agent to work
Real estate agents have a sense for if a transaction is likely to succeed. Have your agent ask the listing agent if the seller is accepting backup offers. Sellers are more open to backup offers in the beginning of the closing process, so it’s important that you move quickly. If the seller is still receiving offers, work with your agent to see what contract terms would be ideal.
View the home
View the home if you plan to submit a backup offer. Keep in mind that although you must move quickly, you should also move with caution. Pictures don’t always tell the full story. Have your agent arrange a walkthrough with the listing agent before putting in an offer on a house.
Put in a competitive backup offer
After you’ve viewed the property and are satisfied with what you’ve seen, it’s time to submit an offer the seller would accept. If the seller is open to backup offers, it’s likely yours is not the only one they will come across. Make sure your offer stands out by offering a higher dollar amount and eliminating contingencies, responsibly. It can be tempting to loosen up on all contingencies, but be careful not to get carried away. Only submit an offer you’re comfortable with.
It’s not too late to buy a home that’s under contract
If you’ve found the perfect home but another buyer beat you to the punch, don’t give up hope just yet! There are a series of actions that need to take place on behalf of both buyer and seller before the home sale is final. You can still make a backup offer on a home that’s under contract.
Contingencies mentioned in the purchase agreement can seriously derail the sale of a home if they are not met. Work with your real estate agent to determine the likelihood of the sale falling through and if it’s worth submitting a backup offer. However, you shouldn’t forget that there is no guarantee the buyer or seller will back out. Keep your feet on the ground throughout the process to avoid any further disappointment.
About the author: Vivian Tejada is a freelance writer and small business strategist based out of Providence, RI. She writes SEO blogs, articles, and neighborhood guides for a variety of real estate companies. She’s also an avid traveler, location-independent and enjoys trying out new restaurants.