What Does Under Contract Mean in Real Estate

what does under contract mean in real estate
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In the real estate world, various terms and jargon may seem confusing to newcomers. One such term is “under contract.” If you’ve ever explored buying or selling a property, you might have encountered this term and wondered what it means. In this article, we will delve into what does under contract mean in real estate, explaining its significance and shedding light on the various aspects associated with it.

When a property is deemed “under contract,” the buyer and seller have reached a mutual agreement and signed a legally binding contract outlining the terms and conditions of the sale. It is an essential stage in the real estate transaction process, signifying that both parties have committed to the deal.

Importance of Understanding the Term

Understanding what it means for a property to be “under contract” is crucial for both buyers and sellers. It represents a significant milestone in the transaction, as it marks the transition from negotiations to the formalized legal process. Whether you are a buyer eagerly waiting to secure your dream home or a seller looking to close the deal, being well-informed about the implications of being “under contract” will help you navigate the process more effectively.

How Does a Property Go Under Contract?

A property going “under contract” typically starts with the buyer submitting an offer. The offer includes the proposed purchase price, financing terms, and contingencies or conditions. If the seller finds the offer acceptable, they can accept it as-is, reject it outright, or propose counteroffers to negotiate further terms. Once both parties agree on the terms and sign the contract, the property is officially considered “under contract.”

Elements of a Real Estate Contract

A real estate contract is a legally binding agreement that establishes the rights and obligations of the buyer and seller. It contains several key elements, including:

1. Purchase Price and Financing Terms

The contract specifies the agreed-upon purchase price of the property and the financing arrangements, such as the down payment amount and the type of mortgage.

2. Property Details

The contract includes a description of the property, including its address, legal description, and any fixtures or appliances.

3. Contingencies and Conditions

Contingencies are provisions in the contract that allow either party to terminate the agreement under specific circumstances. Common contingencies include financing contingencies, home inspection contingencies, and appraisal contingencies.

4. Closing Date and Possession

The contract sets a date for closing the sale, at which point the buyer assumes ownership of the property. It also outlines when the buyer can take possession of the property.

5. Disclosures and Representations

The contract may require the seller to disclose any known defects or issues with the property, ensuring transparency and protecting the buyer’s interests.

Rights and Responsibilities of Parties

When a property is “under contract,” the buyer and seller have certain rights and responsibilities. These may include:

  • The buyer’s the right to inspect and investigate the property’s condition.
  • The seller’s responsibility is to maintain the property in the agreed-upon condition until the closing date.
  • The buyer’s responsibility is to secure financing or fulfill other specified conditions within the given timeframe.
  • The seller must deliver the property’s title free and clear of any liens or encumbrances.

Duration of the Under Contract Periodwhat does under contract mean in real estate

The duration of the under contract period can vary depending on the negotiations and agreed-upon terms. It typically ranges from a few weeks to a couple of months. During this period, the buyer and seller work towards satisfying the contingencies and conditions outlined in the contract, leading up to the sale’s closing.

Contingencies and Conditions

Contingencies and conditions play a crucial role in a real estate contract. They provide protections for both parties and allow for the possibility of contract termination under specific circumstances. Some common contingencies and conditions include:

  • Financing contingency: This allows the buyer to back out of the contract if they are unable to secure suitable financing.
  • Home inspection contingency: It enables the buyer to have the property inspected and request repairs or negotiate the price based on the inspection results.
  • Appraisal contingency: If the property does not appraise for the agreed-upon purchase price, this contingency allows the buyer to renegotiate or terminate the contract.

Escrow and Earnest Money

When a property is under contract, the buyer typically provides earnest money to show good faith and commitment to the transaction. This money is held in escrow by a neutral third party until the closing of the sale. If the transaction successfully concludes, the earnest money is typically applied towards the buyer’s closing costs or down payment.

Role of a Real Estate Agent

Throughout the process of a property being under contract, a real estate agent plays a crucial role. They assist both the buyer and seller in navigating the complexities of the transaction, ensuring that all contractual obligations are met, and facilitating effective communication between the parties involved.

Role of an Attorney

In some real estate transactions, particularly those involving complex legal aspects, the involvement of an attorney may be necessary. An attorney can provide legal advice, review the contract, and ensure that the buyer’s and seller’s rights are protected.

Common Mistakes to Avoid

When dealing with a property under contract, it is essential to avoid common mistakes that can jeopardize the transaction. Some key mistakes to steer clear of include:

  • Failing to review and understand the contract terms thoroughly.
  • Neglecting to satisfy contingencies within the specified timeframe.
  • Not conducting proper due diligence, such as home inspections or title searches.
  • Making major financial decisions that could affect mortgage qualification before the closing of the sale.

Benefits and Risks

Being “under contract” offers both benefits and risks for buyers and sellers. Some advantages include:

  • Assurance of a secured purchase or sale.
  • Opportunity to conduct thorough inspections and investigations.
  • Protection through contingencies and conditions.

However, there are also risks involved, such as:

  • Possibility of the deal falling through due to unsatisfied contingencies.
  • The property being off the market while under contract.
  • Financial consequences if either party fails to fulfill their contractual obligations.


Understanding that a property is “under contract” is vital for anyone involved in a real estate transaction. It signifies a significant step in the buying or selling process and comes with its rights, responsibilities, and potential risks. By being well-informed and working closely with professionals such as real estate agents and attorneys, buyers and sellers can navigate the under-contract period smoothly and increase the likelihood of a successful sale.

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