Maybe you’ve been driving through your favorite neighborhood and you’ve just spotted a home you want to buy. Maybe you’ve been searching online for homes and you were ready to throw in your offer on a favorite. Suddenly, you spot the “under contract” or “pending” sign.
Does this mean that the home is not for sale anymore?
Well, not quite. Just because a home is pending or under contract doesn’t mean that the house is off the market. To better understand your chances to still land your dream home, you’ll need to learn about the differences between “pending” and “under contract”.
What’s the difference between pending and under contract?
When purchasing a home, it’s important to understand the difference between “pending” and “under contract” to avoid potential complications. A home sale can fall through due to various contingencies, and understanding the timing of these contingencies is crucial.
When a homeowner accepts an offer, they enter into a contractual agreement with the buyer based on contingencies, such as a successful home inspection. At this stage, the home is considered “under contract.” As the contingencies are met and the contract nears its completion, the home sale is marked as “pending.”
Knowing the difference between these two terms can help you determine whether you should continue pursuing a home purchase.
Under contract definition
Sometimes, you might hear that a house is active under contract. This term simply means that the homeowner has accepted an offer from a buyer and that they are currently undergoing the necessary processes to reach the terms of the contract.
During this time, the contract is vulnerable. The offer of money is agreed upon, but the buyer might still need to secure a mortgage and the house will still have to undergo tests such as appraisals and inspections. The buyers might have also requested extra contingencies, such as repairs or replacements of appliances and structural issues.
If a home inspection turns out bad results, the buyers have the opportunity to back out of the agreement or attempt to change their offer. If the buyers can’t secure a mortgage, the sellers can invalidate the contract due to insufficient payment.
The exact ways a seller or buyer can break the contract will depend on the clauses written into the contract. Each homeowner and buyer must be careful when reading the contract and make certain they can leave if things go south.
What’s the difference between house pending sale vs under contract, then? When used correctly, pending sale means that a home has been under contract and undergone a home inspection and appraisal. Many of the necessary steps towards completing the contracted terms have been completed and the home is close to being sold.
In other words, the contingencies in the contract have been fulfilled so there are no more barriers to the buyers taking ownership of the home.
Real estate process basics
When a home goes up for sale, it’s open to offers from anyone. A real estate agent will upload a home profile online, drive a sign into the lawn, and contact some other agents.
During this time, the house is open to buyers who’d like to tour and the homeowners are accepting offers. An interested buyer will provide a formal offer either on their own or with an agent. Sometimes, some contingencies come along with the offer.
A contingency is a term that requires action to go through with the sale. For example, the contingency might be that the buyer offers to pay a certain amount for the home, but only if they can secure a loan from the bank.
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The homeowner can consider as many offers as they’d like. It is up to their discretion, advised by their agent, how long they can take to consider an offer and if they will respond with a counteroffer or accept.
If the homeowner likes a buyer’s offer, they can start a negotiation. Even when the homeowner begins negotiation, they are not required to stop accepting offers from other potential buyers. They can consider as many offers as they’d like and attempt negotiations with anyone.
If the seller and buyer meet the terms and agreements, then a homeowner can choose to accept an offer. How this agreement moves forward, however, will determine what position the homeowners are in when it comes to other offers.
Why are contingencies so important?
If you’re really interested in a home that is already under contract, contingencies are your best friend. Contingencies are the terms in the contract that must be met for the sale to go through. If you really want to buy a house under contract, then you’ll really want the buyer or owner’s responsibilities to fall through.
So what are some contingencies that can cause a contract to falter?
Arguably the most important contingency in a home sale contract is that the buyer secures enough money to buy the home. In most cases, a buyer will need to borrow money to cover such a large expense. In some cases, buyers can offer cash for a home and this can be a huge reason homeowners accept an offer.
Offering cash is a great way to streamline the buying process and guarantee payment. The homeowners won’t have to wait to hear if the buyers secured a mortgage, therefore taking away that risk from the contract. There are also fewer strings to pull, less paperwork, and fewer people that get involved with the sale.
For the majority of home sales, a mortgage contingency grants that the buyer must secure a mortgage for a certain amount to afford the home. Many buyers will get pre-approved for a mortgage before they put down an offer because otherwise, a homeowner could be skeptical that they can afford the sale.
The homeowner will often put down “earnest money” in an escrow account as their good faith security deposit on the home to enter the contract. If the buyer fails to secure their mortgage, the homeowners can invalidate the contract and keep the earnest money.
Home inspections are a major step in the home sale process. Pictures, descriptions, and agents can say all they want about how great the home is, but major issues can be lurking beneath the surface. Buyers will want a professional to perform a home inspection to make sure they understand exactly what they’re paying for.
A lot of issues that home inspectors can find will end with major expenses for repairs and replacements. They’ll check everything from termite damage to the age of the roof and water heater. The sellers might then have to fix any structural issues and damage.
The buyers can demand that sellers repair any issues found by the home inspector. Or, they can choose to move forward with the sale as is or ask for a discounted price. It is up to the homeowners to then negotiate with the buyers over a new term on the contract.
In the case that the two sides cannot come to new terms, the buyer gets their earnest money back and the sellers will go back to square one.
Another important part of the process has less to do with the homeowners. For the buyers to move into the new home, they’ll often need to sell their current one as well. Sometimes, buyers are willing to own two homes at once, but most of the time this is impossible financially.
As a result, a buyer will put into their offer that the home sale is contingent on the sale of their own home. This can be rushed or take a long time, depending on how long both parties are willing to wait for the sale to go through. Generally, the contingency will come with a set time period, and might also require that the sellers are willing to move out of their home within a certain period as well.
These contingencies can be very stressful and often cause contracts to fall through. Selling a home is never a certain thing, so putting a set time limit on it is risky. A buyer will want to be very confident they can meet this contingency in selling fast before they make the offer.
Otherwise, they’ll lose out on the home and possibly their earnest money, too.
Aside from a home inspection, appraisals are very common in the cases of buyers needing a mortgage. To determine if the buyers can afford a mortgage, mortgage lenders will often hire a third-party professional to appraise the value of the home in question.
The appraiser’s job is to put a market value on the home that is objective and separate from the sale price. The lender compares the appraisal with the sale price and determines affordability. This is how they decide if the investment makes sense for the buyer’s financial situation.
In the case that the appraiser decides the home’s fair market value is lower than the sales price, the buyers might need to go through more effort. They’ll have to look for additional funding because their original mortgage does not cover enough of the cost.
If the buyer is not able to find enough money, the contract is null and void. In this case, the seller can keep the earnest money and put the home back on the market.
Can you still buy a home if it’s under contract?
If your dream home has just been listed as under contract, don’t lose hope. It’s common for homes to at first be under contract but fall through due to contingencies. Many times, a home inspection reveals a huge problem or the buyers can’t secure a big enough mortgage.
During the under contract phase, the home sale is still very new and has not undergone many of the required steps to fulfill the contract. You can even still put your offer out there to see if the homeowners are interested. That way, if the contract falls through, they can choose to consider your offer instead.
Can you still buy a home if it’s pending?
If you’re comparing active under contract vs pending, then pending is a bit of a less desirable scenario. When a home is pending, it is most likely much further along in the contract. Pending sales mean that the buyers and sellers have fulfilled contingencies in the contract, so the home is very close to selling.
At this point, an agent will be less likely to hear you out if you’re looking to make an offer. It is much less likely that the sale will fall through at this point. Something drastic would have to happen for the contract to be terminated.
If you’re really set on the house, you can always still pass along your contact information. It’s possible, albeit unlikely, that you still have a chance. In the case that it does fall through, you won’t have as much competition and you might be the first one they call.
What are backup offers?
Still interested in putting an offer in on a home that’s under contract? Good news: sellers are allowed to accept backup offers in the case that the original contract falls through. Usually, this means that one backup offer will be chosen out of all the offers to be marked as a priority in the case that the home goes back on the market.
If the house is still considered under contract, you can confidently still communicate your offer to the sellers. This is especially true if the sale is a foreclosure or short sale, as buyers drop out more often in these cases.
If the house is pending, you can try, but it’s in your best interest to keep looking.
Make the move
Have your eye on a great home? Now that you understand pending vs under contract, you know if you can still make an offer on your dream home. You’ll likely also realize that you need to start trying to sell your own home.
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