When it comes to buying or selling a home, you may have come across the term “under contract.” But what exactly does it mean? In simple terms, being under contract means that a buyer and seller have agreed on a purchase price and terms, and both parties have signed a legally binding contract. However, the sale is not yet final, as certain conditions and contingencies must be met before the deal is closed.
How Contingencies Impact a Property’s Under Contract Status
Contingencies play a critical role in the real estate process, directly affecting a property’s under contract status. They act as safety nets for both buyers and sellers, ensuring that specific conditions are met before the transaction can be finalized. Let’s delve into the various contingencies and how they influence a property being under contract.
Financing Contingency
A financing contingency is a common clause in real estate contracts that protects the buyer. If the buyer is unable to secure a conventional mortgage rate or adequate financing within a specified timeframe, they can walk away from the deal without losing their earnest money deposit. This contingency has a direct impact on the under contract status, as it can cause the deal to fall through if financing is not approved.
Home Inspection Contingency
The home inspection contingency allows the buyer to conduct a professional inspection of the property. Should the inspection reveal significant issues, the buyer can request repairs, negotiate a lower purchase price, or even terminate the contract. Consequently, this contingency can influence the under contract status and potentially lead to renegotiations or the termination of the agreement.
Appraisal Contingency
An appraisal contingency is another crucial aspect of a property being under contract. This condition stipulates that the property must be appraised at or above the agreed-upon purchase price. If the appraisal comes in lower, the buyer can renegotiate the price, seek additional financing, or cancel the contract. Thus, an appraisal contingency directly affects the under contract status, as it determines whether the transaction can proceed based on the property’s value.
Sale of Existing Home Contingency
In some cases, a buyer may include a contingency for the sale of their existing home. This means that the purchase of the new property is contingent on the successful sale of the buyer’s current residence. If the buyer’s home does not sell within a specified time, they may be released from the contract. This contingency can impact the under contract status of a property, as it relies on the successful sale of another property to finalize the deal.
What’s the Difference Between ‘Under Contract’ and ‘Pending Sale’?
Understanding the real estate terminology is crucial when you’re buying or selling a property. Two terms that often create confusion are “under contract” and “pending sale.” So, what’s the difference, and how does it affect the home buying process? Let’s dive in and explore the distinctions.
Under Contract: A Conditional Agreement
When a property is “under contract,” it signifies that the buyer and seller have agreed on a purchase price and other terms, and have signed a legally binding contract. However, this agreement is still subject to certain conditions, called contingencies, that must be met before the sale can be finalized. Common contingencies include securing financing, completing a satisfactory home inspection, and obtaining a favorable appraisal.
Pending Sale: A Step Closer to Closing
On the other hand, a “pending sale” means that all contingencies have been satisfied, and the buyer and seller are simply awaiting the closing date. In this stage, the sale is almost guaranteed, barring any unforeseen last-minute issues.
Can Home Buyers Back Out Of A Sale If They Are Under Contract?
When exploring the question, “What does under contract mean?” potential home buyers might also wonder if they can back out of a sale if they are under contract. The answer depends on the specific terms and conditions within the contract, as well as the contingencies that have been included.
The Role of Contingencies
Contingencies play a crucial role in determining whether a buyer can back out of a sale without facing legal consequences. Common contingencies such as financing approval, satisfactory home inspection, and favorable appraisal can provide buyers with an exit strategy if certain conditions aren’t met. In such cases, the buyer can legally terminate the contract without penalty.
Breaching the Contract
If a buyer attempts to back out of a sale without a valid reason, they may be breaching the contract. In this situation, the seller could potentially take legal action against the buyer, and the buyer may be forced to forfeit their earnest money deposit as compensation for the seller’s damages.
Understanding the Contract
It is essential for how to get approved for a new home buyers to thoroughly understand the terms and conditions of their contract, as well as their rights and obligations under it. Consulting with a real estate attorney or agent can provide valuable guidance on whether backing out of a sale is a viable option.
Decoding the Under Contract Status: A Final Thought
A home that’s under contract signifies a critical milestone in the real estate journey, with the seller accepting the buyer’s offer to purchase the property. However, before the sale can be finalized, specific contingencies, such as home appraisal, inspection, and buyer financing, must be satisfied. Failure to meet these conditions could potentially derail the entire deal.
Given the complexities and uncertainties surrounding real estate transactions, it’s not uncommon for sellers to entertain backup offers. Whether or not these offers come into play depends solely on the original buyer’s ability to fulfill the agreed-upon terms and conditions.
So, the next time you’re browsing through property listings and come across a home under contract, don’t jump to conclusions and assume it’s off the market for good. Keep an eye on it, as you might just have an opportunity to make an offer and potentially secure your dream home purchasing.
Take the first step towards your new home with confidence – obtain a preapproval letter from Just Funded Mortgage! Call our friendly team at 833-888-3863 or apply online to find out how much house you can afford, and let’s embark on this exciting adventure together!
