When buying or selling a property, you may have come across the term “under contract” in real estate. This phrase is commonly used in the industry, but it may not be clear to everyone what it actually means. In this article, we’ll break down the definition of “under contract” in real estate and what it means for both buyers and sellers.

What is “Under Contract” in Real Estate?

When a property is listed for sale, buyers can make offers on the property. If the seller accepts an offer from a buyer, the property is considered “under contract.” Being under contract means that both parties have agreed to the terms of the sale and have signed a legally binding contract.

Under contract status often lasts until the closing of the sale, which is when the property is officially transferred from the seller to the buyer. During this time, the property is no longer available for sale, and other potential buyers cannot make offers on it.

What to Expect When a Property is Under Contract

If you’re a buyer and your offer has been accepted, you should expect to go through with the sale as outlined in the contract. This means you’ll have to complete any inspections or appraisals as specified in the agreement. Additionally, you’ll need to make sure all financing, such as obtaining a mortgage, is secured before the closing date.

As a seller, being under contract means you’ve agreed to sell the property to the buyer. Typically, a seller is unable to accept any other offers once their property is under contract. The only exception would be if the buyer defaults on the contract before the closing date, which would allow the seller to put the property back on the market.

What Happens If a Buyer or Seller Backs Out of the Contract?

Breaking a real estate contract can have serious financial consequences for both parties. If a buyer backs out of the contract without a legal reason, they could forfeit their earnest money deposit, which is a monetary deposit made by the buyer to show good faith toward completing the sale. If a seller backs out of the contract, they may have to pay a penalty to the buyer.

However, there are some legitimate reasons why a buyer or seller may need to back out of a contract, such as issues found during inspections or problems with financing. If either party decides to back out, they should work with their real estate agent or attorney to ensure they are following the terms of the contract.

In Conclusion

Being under contract in real estate means that both parties have agreed to the terms of the sale and have signed a legally binding contract. During this time, the property is no longer available for sale, and other potential buyers cannot make offers on it. It’s important for both buyers and sellers to understand what being under contract means and to work with their agents or attorneys to navigate the process.