What does ‘under contract’ mean?

“‘Under contract’ is more or less a meeting of the minds,” says Julie H. Kaczor, a top-selling agent from Illinois with 30 years of experience. “It means the buyer and seller have agreed to the terms of the contract, such as the price, the closing date, the personal property, the earnest money, tax preparation, and contingencies.”

It sounds pretty straightforward, right? But Kaczor explains that while “under contract” indicates that the seller has accepted an offer from a buyer, the deal is not yet final. In most cases, there are contingencies in the buyer’s offer that need to be cleared before the transaction is moved to the more solid “sale pending” status.

What contingencies might be attached to ‘under contract’ listings?

Oriana Shea, a top-rated agent in California who has been helping homebuyers for 26 years, says that, depending on local multiple list service (MLS) rules and where the property is located, a listing might actually be tagged as “contingent” rather than under contract. “Both indicate that the buyer and seller have come to a ratified agreement,” she explains.

To fully understand what “under contract” means, let’s take a look at some of the contingencies that might be attached to such a listing.

There are four common types of real estate contract contingencies. After you open escrow and the buyer submits a good faith earnest money deposit, some or all of the following contingencies may need to be addressed:

• The financing contingency will appear in contracts where a buyer needs to finalize a mortgage loan to purchase the home. The buyer may even be pre-approved by their lender, but there’s still work to be done before the financing officially comes through.
• The appraisal contingency is a clause that gives the lender the opportunity to have an appraisal done and ensure the amount the buyer is offering for the house is fair market value. If the value comes back under the contract price, and the seller won’t come down on price or meet the buyers halfway, the buyers can walk away from the deal.
• The inspection contingency allows time for a thorough inspection by a third party to catch any issues — minor and major — with the home that the buyer should be aware of. For example, if the inspection reveals the roof needs to be fully replaced, the buyer may ask the seller to lower the price or have it replaced before proceeding. If both parties can’t reach an agreement, and the issue is large enough, the buyer can choose to back out of the agreement.
• The home sale contingency says the buyer will purchase the house only once they’ve sold another property they own. This is common when the buyer needs equity proceeds from their existing home to buy their new home. The first three contingencies on this list are almost always in a purchase contract, while this one is a little more of a wild card. It creates uncertainties, especially for anxious sellers.

If all the conditions in a purchase agreement are met, the sale can move forward. Alternatively, if the conditions aren’t met, the house could go back on the market.