When buying a home what does under contract mean

Found a home listing you love, but it’s got the dreaded “under contract” status? You might not be out of luck — yet. Under contract typically means the deal still has major hurdles to clear, so the seller may be accepting backup offers.

CL

Chelsea Levinson, JD

7/29/2022 · 6 min read

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Key Takeaways

• “Under contract” means the seller has accepted an offer, but there are still conditions to clear before closing. “Active under contract” means the seller is welcoming backup offers.

• “Pending” means the home is under contract, and all conditions have been met for the deal to close. Pending listings typically don’t accept backup offers.

• Sometimes the terms “under contract” and “pending” are used interchangeably. Always have your agent check with the seller to find out if they’re accepting backups.

• Around 7% of real estate contracts are terminated, with home inspection, financing, and appraisal issues being the top culprits.

• Backup offers can end in disappointment, but it may still be worth putting your best bid forward. Work with your agent to determine the best path for success.

You’re spending way too much time scrolling through your saved potential dream homes. Suddenly, you notice that your absolute favorite property just went under contract. Your stomach drops. You were planning to make an offer. Now what?

Don’t despair — just because a house is listed as “under contract” doesn’t mean you’re out of the running entirely. Some sellers may accept backup offers, and deals do fall through occasionally. 

But before jumping into your options, there are a few important details to nail down. Like, what does “under contract” mean? How does that compare to listings that are “pending”? And how likely is it that you’ll even have a shot once a seller is under contract with another buyer? Here’s what buyers need to know. 

What ‘under contract’ means for you buying a house

When you see a listing marked as “under contract,” it means the seller has accepted an offer, but there are still contingencies to clear before the deal can close. 

Contingencies are conditions added to a real estate contract. If all contingencies of a contract are met, the sale can move forward. If a contingency can’t be met, the buyer can walk away from the deal without losing their deposit. Contingencies are one of the main strategies buyers use to protect themselves during a home purchase. 

There are a few common contingencies to familiarize yourself with while house shopping.

• Financing contingency: Unless they’re using all-cash, a buyer needs to secure financing to purchase a home. If they can’t get adequate financing, the sale can’t move forward. 

• Appraisal contingency: Lenders won’t loan more money than a house is worth, so they require an appraisal to confirm the property’s value before finalizing the mortgage. If the appraisal comes in lower than the purchase price, the buyer can cover the remaining balance out of pocket, renegotiate with the seller, or walk away. 

• Home inspection: This contingency allows the buyer a period of time to hire a professional inspector to “look under the hood” of the home. If the inspection reveals major problems, the buyer can renegotiate with the seller, request repairs, or terminate the contract. 

• Home sale: This one’s for buyers who also need to sell a previous home, often to avoid paying two mortgages at once. A home sale contingency gives the buyer a specific time frame (usually 30 to 90 days) to sell their previous house so they can move forward with the purchase of the next property. If the buyer can’t sell their previous house in time, they can opt out of the purchase.

‘Active under contract’

Active under contract means the seller has accepted an offer, but they’re also welcoming backup offers. The seller may have reason to believe their current deal isn’t on solid footing, or perhaps they’re just being extra cautious because nothing’s final until closing. Whatever the case, if you see a house you love, and it’s listed as “active under contract,” it may be worth putting in a backup offer. If the current buyer falls through, you’ll be on the list and ready to move forward.  

Under contract vs. sale pending: What’s the difference?

While “under contract” typically means there are still contingencies left to clear, pending status usually means all contingencies have been met and the deal is on its way to closing. Pending listings are less likely to accept backup offers.

However, there’s a caveat. Sometimes terms like “pending” and “under contract” are used interchangeably. So just because a home is listed as pending doesn’t necessarily mean the deal is sealed or the seller isn’t accepting backup offers. Always have your agent reach out to the seller for more details. It never hurts to explore all your options. 

What to do if a house you love is under contract? 

You’re desperate to bid on that cute little bungalow just outside town, but the listing says pending or under contract. What do you do? It’s time to take action. Have your real estate agent reach out to the seller’s agent. Find out if they’re accepting backup offers, and whether you’ve got a chance at being considered. Your agent should also find out what’s important to the seller so you can make the strongest bid possible if you’re given the green light.  

There are a few things to keep in mind when it comes to backup offers. First, it’s unlikely that the seller’s prior deal will fall through, so you may end up disappointed. Second, your offer could end up in limbo while you’re missing out on homes that are more readily available. 

That said, it may be a good idea to try. You definitely won’t get the house if you don’t  make an offer. Talk with your agent to decide the best path forward; one that strikes a balance between protecting your interests and assertively going after your dream home.

How often do contracts fall through?

Real estate contracts can and do fall through occasionally. According to January 2022 data from the REALTORS® Confidence Index Survey, around 7% of real estate contracts are terminated. The top reasons?

• Home inspection issues (25%)

• Financing issues (21%)

• Appraisal issues (15%)

• Contingency issues (5%)

• Title/deed issues (3%)

• Buyer lost job (2%)

• Other (29%)

So it’s possible your dream house could become available if something goes wrong with the current buyer. Is it likely? Probably not with around 93% of sales closing. But there are instances where your chances could be better, such as a buyer with an unstable financial situation, or an inspection that didn’t go as planned. 

This is why it’s crucial to have your agent find out everything they can from the seller. The existing deal could be on shaky ground, but you can’t know that without asking. 

Wrapping up 

Found a listing you love, but it’s got the dreaded “under contract” status? You might not be out of luck — yet. Under contract usually means the deal has unmet buyer contingencies, so the seller may be accepting backup offers. While contracts are only terminated around 7% of the time, it’s still worth reaching out to the seller to ask about making a bid. Work with your agent to make a smart plan that protects your interests.

CL

Chelsea Levinson, JD, Author

Chelsea Levinson, JD, is an award-winning content creator with expertise in real estate, mortgage, and personal finance. She has written for top real estate publications like HomeLight and Bigger Pockets, and has created content for some of the world’s most recognizable brands, including Bank of America, Vox, Comcast, AOL, State Farm Insurance, PBS, Delta Air Lines, Huffington Post, H&R Block and more. When she's not writing, you can find her fixing up her cabin in the Catskills.

JG

Jena Greene, Editor

Jena Greene is the Managing Editor at Opendoor. She covers real estate, personal finance, money management, and market best practices. Jena is passionate about empowering people to find their dream homes and making the home-buying process a delightful one.

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