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What Does Under Contract Mean in Real Estate?

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It could take anywhere from 6 months to a year depending on the current real estate market and what kind of home you’re looking for. You might be waiting a long time to find and purchase your dream house.

But what if you have found your dream house and it says it’s under contract? What does under contract mean? And can you still put an offer if a house is deemed ‘under contract’?

Buying your home is such a monumental occasion in a persons’ life. There’s no other time that you will be spending that much money (thousands or millions of dollars) to purchase something. You are going to be stuck with this purchase for a lifetime, so it’s a good idea to know all the various real estate terms involved. 

In the sections below, we will look at what does under contract mean in real estate, so keep reading!

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What does active under contract mean?

Due to two scenarios, the cooling-off period and conditional offers (we will go through them in detail below), there is a possibility that the sale of a house is not yet completed. The buyer has made an offer, and the seller has accepted it, BUT the sale isn’t complete. 

Even though the buyer and seller have agreed to the terms, the deal is still in its early stages, and it’s possible that it may not come to fruition. This means that the house is under contract.

Cooling-off period

This period gives buyers 3 business days to change their minds about the contract. The buyers can conduct further inspections of the property during this time, and if something untoward comes up, they can cancel the deal. 

The cooling-off period varies from state to state (and some states don’t have them at all, so do your research). It’s there to ensure that the buyer doesn’t get stuck in a contract or deal where he or she isn’t completely satisfied. It’s there to protect the buyer. 

Conditional offers

In a private sale, sometimes, a buyer can request certain conditions from the seller before they finalize the contract. It could be simple things like getting the driveway redone, or it could be more complex, like fixing the leak in the roof or transferring ownership of the solar panels on the roof. 

Until these conditions are met, the house is ‘under contract’. But once all the conditions are met to the buyer’s satisfaction which can take a while, the sale goes through and the property is considered ‘sold’. Also, until this point, the buyer has the chance to back out of the contract. 

What are the chances that a contract could fall through?

As seen above, there are many chances for the contract to fall through. These could be things like if the buyer does their due diligence and finds problems with the house that cannot be resolved satisfactorily, or the appraisal results in something untoward, or the loan doesn’t get approved in time. 

Many other scenarios could pop up that put a wrench into the contract and cause the deal to fall through. 

This is all good news for you if you have been waiting to put in an offer (or already have put in an offer) on a house that shows up as ‘under contract’ in the listing. As you can see, you don’t have to lose all hope when you see your dream house, but it says it’s under contract. 

Can you still put in an offer if a house is under contract?

What does it mean when a house is under contract for you as the buyer who’s waiting with a backup offer? You are absolutely allowed to put in an offer to a house even if it shows up as ‘under contract’ on the listing. That’s not illegal in any way.

In fact, it’s positively encouraged. After all, many contracts fall through even when they are so close to the end because something doesn’t click right. Humans are allowed to change their minds, of course, and especially when they are making a dramatic decision that could affect the rest of their life. And they do change their mind, quite often.

So be bold and go forth – put in an offer on a house even if it says under contract. Do not fear that the real estate gods will come down upon you.

You will probably notice that you are not the only one who puts in an offer on a house that’s under contract. It’s a general trend to HOPE that other contracts will fall through and yours will be the only one that goes through.

Just remember this though – if you have limited time and you really need to find a house asap, then perhaps you shouldn’t be putting in the energy, time, and effort to cobble together an offer that might get rejected. It’s all about doing your cost-benefit analysis and figuring out if this house is truly worth your time and effort. IF it is, then go ahead and put in that offer!

What does it mean if the contract gets canceled?

As soon as a house that’s under contract has its contract canceled, all bets are off. At this point, the house is on the market again and accepting offers. If you have already put in an offer, you are ahead of the game. 

Now all buyers have the opportunity to buy this house again. But don’t get overenthusiastic here. Stop looking at this home with rose-colored glasses and try to figure out with your real estate agent’s help why the contract was canceled.

What caused the previous buyer to back out at the last minute? Is it something that could affect your decision to purchase as well?

It’s time for you to become hyper-critical and aware, so you don’t end up making any mistakes by purchasing this house.

Maybe the previous buyer’s contract fell through due to a mortgage issue, then that’s nothing for you to worry about. But if it fell through because the roof has a huge insurmountable problem or the foundation is cracked, then you can forget about this house and find something else. Don’t get attached to a dead horse – move on and move up. 

What is the difference between sale pending and under contract?

A lot of people confuse the two terms, sales pending, and under contract, so we want to clarify the difference here. As mentioned above, under contract means that the buyer and seller have come to terms but the deal is still in the early stages and could flop anytime.

Sales pending isn’t the same. In a sales pending situation, the buyer and seller have agreed to terms and the deal is on the verge of being completed. It’s very close to the end. This means that the possibility of the contract falling through is minuscule and many real estate agents will not accept backup offers on such houses. 

There’s no harm in putting in offers in both situations though because you never know what might end up happening. As they say, nothing ventured, nothing gained. 

Why are real estate properties that are under contract still listed?

You might be a bit confused at why real estate properties that are under contract are still listed on the websites and real estate applications. Wouldn’t it be better for the real estate agents to pull these listings completely? Why are they creating this befuddling situation? 

Well, it’s not as cut and dried as all that. As you have surmised from the sections above, a house that is under contract still has the possibility of having its contract fall through. There are many scenarios in which this might happen. 

Real estate agents like to accept offers on these homes even if they are under contract, to ensure that they aren’t scrambling if the contract falls through for some unforeseen reason. They will even hold showings of the home or have inspections scheduled for the home, even though it says ‘under contract’ on the web listing. 

It’s a sort of safety net for the seller and the real estate agent because they are ensuring that they don’t start from ground zero if the contract doesn’t go through. If they have a few offers in their back pocket, they are much further ahead in this scenario. 

Stay positive even though your dream house says under contract

Alright, so you’ve put in your backup offer to your dream house, but you are wondering if you should have even bothered, especially since the house says ‘under contract’. Fear not!

At this time, the best thing you can do is stay positive. Maybe it will work out and you will end up getting that those. Maybe not.

But either way, you’ve done your best. And that’s all you can really do here. 

If you are in the seller’s market and looking to sell your house fast to a trusted buyer, consider checking out iBuyer’s services. You can get your free home valuation by putting in your home address to figure out what a trusted iBuyer would offer for your house. It’s quick and easy to get a no-obligation cash offer for your home. 

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