Most potential homeowners have been there: Browsing through homes online, you find the home you’ve always wanted, only to see that it’s listed as “under contract.” It’s not a pleasant feeling to find that your dream home could be just out of reach.

But while it’s certainly not ideal to be interested in a home under contract, the term can have a range of meanings, with a variety of outcomes. Let’s learn more about what the phrase “under contract” really means.

What Does “Under Contract” Mean?

Under contract is something of an umbrella term within real estate, which kicks in as soon as a home’s seller has accepted an initial offer from a buyer. Once a home is under contract, someone out there is officially first in line for it – but it’s not an automatic happily-ever-after. Once a home goes under contract, there are many stages to go before the seller hands over the keys.

The biggest reason for this is that sales aren’t final until a number of contingencies are met; we’ll explore these in more detail below, but a common contingency is that the buyer must secure home financing before a sale can go through.

While timelines can vary, it typically takes 1-2 months for a home sale to close, though in some cases, up to 4 months or longer.  According to the National Association of Realtors, over 80% of home sales go into settlement within two months of a signed purchase agreement, with much of the remainder completed within four months of the home going under contract.

What Does It Mean to Be “Active Under Contract?”

Within the “under contract” status, “active under contract” is the earlier stage, when the seller has accepted the offer but the home is also still on the market. You may also find agents referring to homes as contingent which is effectively the same thing.

During this period, the home is under contract but still being shown to potential buyers, to solicit backup offers that the seller can turn to should the original deal fall through. While it’s wise not to get your hopes up too much, if you find that your perfect home is active under contract, it’s certainly worth your while to schedule a viewing and even pull together an offer. 

Prospective buyers who are eager for their backup offer to stand out might consider removing certain contingencies, or even all of them (though it goes without saying that this is a high-risk move). Another good tactic to make with any home offer is to include a personal letter, explaining why you love the home and why you’re hoping to be the owner. A human touch can always help incline the seller in your direction.

What Does It Mean When a Home Is “Pending Sale?”

If a home is now listed as pending sale, things have moved further down the line and your chances of snapping up the home are dwindling. At this stage, all contingencies have likely been removed, and there’s little left to do beyond actually signing the closing papers. Once a home is pending sale, the real estate agent will typically stop showing the property or accepting backup offers.

How Do Contingencies Come into Play?

A home purchase can involve a wide array of contingencies, which will all be outlined in the real estate contract. That said, a few contingencies are the most common:

  • Buyer financing: While this might seem like a sure thing once a buyer’s mortgage application is approved, things aren’t quite so simple. Lenders typically re-check key elements of a borrower’s application soon before closing, and if the borrower has become a weaker applicant, it’s possible for their mortgage to be denied after all.
  • Home inspection: If a home inspection uncovers major health and safety issues, the buyer will likely be able to walk away from the deal; if not, they and the seller will need to come to an arrangement on who will pay for the necessary repairs, and whether the sale price might be lowered as a result.
  • Home appraisal: The home must undergo a final appraisal, in which its current market value cannot come to less than the contract amount. This can often be a major complication in terms of home financing because lenders can’t pay out more than the home is worth for a mortgage.

Current home(s) sale: Contracts will often include the contingency that the seller, buyer, or both need to sell their current residence(s) within a certain time window, to avoid a situation where the buyer finds themselves paying more than one mortgage, or the seller finds themselves with no place to live.

Under What Circumstances Can a Seller Cancel a Real Estate or Home Purchase Contract?

It’s far from unheard of for a seller to back out of a sale, but it’s generally more hazardous to do so for the seller than for the buyer.

Technically, there are plenty of circumstances under which a seller can cancel the contract – from sentimental reasons to family disagreements to receiving a higher offer to general cold feet – but should they cancel, they could end up being sued, being hauled into court (if the buyer chooses to force completion of the sale), or at least paying penalties– whether legal fees, compensation to the buyer, or both.

If the seller wants to back out without these kinds of repercussions, they have far fewer options. Here are a few common reasons why a seller could get away with canceling a sale:

If the contract hasn’t been signed yet, or is still in the five-day attorney review period, during which either party can back out for any reason

  • If the buyer fails to perform, i.e. doesn’t meet contingencies outlined in the contract, like obtaining financing or selling their current home
  • If the seller has been able to put an addendum in the contract, allowing them to back out without penalty
  • If the buyer requests repairs the seller is unwilling to do, which can effectively cancel the contract unless the buyer gives up on the requests

Having said all of that, it’s also crucial to remember that while the differences between these terms are important, many real estate agents use them interchangeably – whether for an external reason, like a limited number of terms in the Multiple Listings Service (MLS) they use, or just out of personal preference.

So if you see that a home you’re interested in is listed as anything other than sold, it’s always worthwhile to talk to your real estate agent and ask them to find out exactly what the home’s status is. They may also be able to get a sense from the listing agent of how likely the sale is to actually go through, so you’ll have a much better sense of whether the home might eventually be under contract – to you.

Last Updated on April 28, 2022