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What Does Under Contract Mean in Real Estate?

Buyers looking for potential houses to purchase may have noticed the terms “under contract” or “pending sale” when perusing listings. But what does under contract mean in real estate? In this article, the Batson Nolan PLC team answers this question and walks you through the stages of a real estate transaction.

Batson Nolan provides legal counsel to buyers and sellers in Tennessee and Kentucky. We understand the challenges faced by those looking to purchase or sell real estate and help them close the deal.

What Does Under Contract Mean in Real Estate?

Under contract means a buyer and seller have signed a real estate contract but are still completing contingencies to close the sale. For example, the buyer may have so many days before they must submit a commitment from their lender to fund the transaction. Or the seller may need to complete and sign disclosures to allow the buyer the opportunity to thoroughly tour the property. Or the seller may have to make agreed-upon repairs.

What Are the Stages of a Real Estate Transaction?

You may have heard terms such as “pending sale,” “under contract,” and “pending contingencies,” but you may not know what these mean. Essentially, these terms describe the status of the house and where it is in the stages of a real estate transaction.

The Seller Lists the House for Sale

The first step in a transaction happens long before anyone signs a contract: the seller lists the house for sale on the real estate market. In the listing, the seller includes a brief description of the property, a proposed sales price, and other details. Many choose to post photos of the house to increase the chance buyers will submit an offer.

The Buyer Submits an Offer

In the second stage, one or more prospective buyers submit separate offers to the seller. The proposal may be a written contract signed by the buyer or a preliminary offer that includes basic information, intending that the parties will negotiate further details to put into the final contract. When submitting a proposal, the buyer typically considers the location, the proposed purchase price on the listing, and the earnest money required.

The Seller Submits a Counteroffer

Oftentimes, the seller will submit a counteroffer with their own demands and requirements. For example, they may request an increase in the buyer’s proposed purchase price. Or they may ask the buyer to waive home inspections or purchase the property “as is.” Other adjustments may include modifications to the types of loan terms the buyer can get, which often impacts the length of the transaction and the chance it will close successfully. Some types of loans have increased requirements, which can make some sellers nervous.

The Parties Enter Into a Contract

Once the parties agree on an acceptable offer to purchase the property and finalize the contract terms, they sign the agreement. Each party is legally bound to follow the terms of the contract. At this time, the house listing changes to “under contract.”

The parties agree to proceed with the preliminary contingencies under the contract and take the house off the market for now, but they still must meet requirements before the sale is final.

The Parties Complete Contingencies

At this stage of the process, the parties use the contract as a guide to complete contingencies. This might include the finance contingency, which requires the buyer to secure acceptable financing to fund the purchase based on what they agreed to do under the terms of the deal. Further, the seller may need to make certain repairs based on defects uncovered during the home inspection.

The House Is Pending Sale

Once the parties complete the contingencies to close the transaction, the house is considered pending sale. This means the parties have done everything they can to meet their obligations under the purchase contract and are waiting to close the transaction. In short, almost everything but the exchange of keys and money is complete at this stage.

Can You Back Out While Under Contract?

Parties are free to back out of a contract at almost any time, but there may be legal consequences for doing so, depending on the reason and the timing. For example, if a buyer fails to show proof of financing by the contract date, the seller may be able to back out of the contract and pursue other offers. Likewise, if the seller fails to make promised repairs in a timely manner, the buyer may be able to bow out of their obligations and move on to other prospects.

Contact a Real Estate Attorney at Batson Nolan PLC for Help

Buyers and sellers need an experienced and skilled attorney to help them understand and fulfill their obligations under the purchase contract. Even if they do not fully understand the materials they sign, they must abide by the terms. A lawyer can explain the legal implications of the contract and the documents to help avoid legal disputes later on.

Batson Nolan PLC has been around since 1860. Many real estate laws have changed since then, but our commitment to excellence and our clients has remained steadfast. If you have questions about a current or potential real estate transaction, don’t hesitate to contact our team today to schedule a consultation.