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What does it mean to put the property in a contract?

In real estate, a home is under contract when a buyer and seller have signed and dated a legal document to purchase a home. The written agreement provides details about both parties and the property being purchased, along with a breakdown of the price and costs involved in the transaction.

There are some important differences between some terms that may guide your decision about whether to keep an eye on the home if the sale falls through.

Under contract/contingent. A home listing with either of these statuses means there’s still a chance you could buy the home since the current buyer and seller are still working through conditions in the contract. For example, if there’s an inspection contingency, the buyer could back out if the home inspection reveals problems that the seller isn’t willing to fix. Once the house goes back on the market, you could then swoop in and buy it.

Pending. If a home sale is pending, the buyer has either made an offer with no contingencies or signed off on them. While there is a chance the deal could fall through on a financing contingency if the buyer’s mortgage is denied, more than likely you’ll need to continue your house hunt.

How contingencies affect a house that’s under contract

A signed purchase contract contains legal language and timelines that all the parties will need to be aware of. Contingencies give buyers and sellers a way to back out of a contract — if either party can’t satisfy a condition laid out in the contract, they have the right to negotiate the contract terms or cancel it. The most common contingencies involve inspections, home appraisals, and financing.

Inspection contingencies

The home inspection contingency is probably one of the most important contingencies for homebuyers. During a time that usually ranges between three and 14 days, a buyer can hire inspectors to check all the components of a home — from the roof to the foundation — to ensure they’re in good working order.

Some types of financing require specific inspections. For example, VA lenders require termite reports in parts of the country where wood-eating insects are common.

Appraisal contingencies

A home appraisal is typically required if the buyer is taking out a mortgage to purchase a home. A licensed professional appraiser compares the features of the home to similar homes in nearby neighborhoods to determine whether the home’s value supports the sales price. If it does, then the appraisal contingency is met.

If the appraised value comes in low, the buyer can pay the difference, ask the seller to reduce the price, or, cancel the contract.

Mortgage financing contingencies

Unless you have the cash to buy a home, you’ll probably need a mortgage financing contingency when you make a purchase offer. The contingency needs to provide details about the type of mortgage you’re applying for, including the terms and timeline for providing proof that you’ve been approved for the loan.

The financing contingency gives you an out if your loan falls through without risking the loss of any upfront earnest money you paid. While that’s a benefit for buyers, some sellers may prefer cash-only offers to reduce the chance that a buyer’s financing could fall through

Home sale contingencies

Buyers who are juggling the sale of their current home while also trying to buy a new home can protect themselves with a home sale contingency. But while it’s a good strategy for buyers that need extra time to sell their home, sellers may reject an offer that includes this contingency if they need a quick sale and don’t want to take the risk that their current home doesn’t sell and they’re stuck remarketing their home.

If a buyer or seller decides to walk away from a contract, either party could be sued if they didn’t follow the contract terms when canceling. A breach of contract lawsuit could result in costly legal battles that could result in:

  • Either the buyer or seller paying money damages

  • The seller returning a buyer’s earnest deposit

  • The buyer and seller completing a court-ordered home sale

“Active Under Contract” is a real estate term that indicates the status of real property (single-family home, condo, townhome, etc.) that has been put up for sale wherein a seller has accepted an offer from a buyer, but the deal has not yet closed. This term is primarily used in the State of California.

A property's status is set to "Active" when posted to Multiple Listing Services (MLS) and then subsequently updated to Active Under Contract when an offer is accepted until the deal closes or is canceled. After closing, the status changes to "Sold."
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