What does "Under Contract" mean in real estate?

 

You have decided to purchase a home. Whether it is your first or tenth home, you will likely come across homes listed as 'under contract' in real estate listings. Homes under contract in real property mean that the home is either pending for sale or contingent. It could also signify that the property is active under contract', as you will see in Charlotte. These meanings can vary slightly.

You've probably stumbled across a listing during your house-hunting journey that looks too good to be true. These photos are stunning. It meets all your requirements. The school district has great amenities, the neighborhood is diverse, and the address is ideal.

You then look at the status, and you realize that it is "under contract." Although this is not a good feeling, it is possible to find a better home or possibly even a property that is not yet listed for sale.

There will be many statuses that you may encounter depending on which listing you are searching for the home of your dreams. "Under contract" refers to a situation in which a potential seller and buyer agree to the terms of the contract. This includes other important factors such as the closing date, price and contingencies.

There are many things that happen when you sign a contract for a house.

What does "under contract" really mean? How will this affect your ability to make an offer on this property? You need to understand how the closing and sales process works in order to answer those questions. So....

A buyer will typically make an offer on a house and work with their real estate agent to create a suitable offer. They also present their preapproval letters proving they are capable of buying the property. The agent will then create an "offer letter" (or "offer to buy and contract") to be sent to the seller's agent. Buyers need many things when purchasing a house. There are many things that can go wrong during the buying process. However, 'under contract' starts with the seller accepting the buyer's offer.

The letter will include key details, such as the price. This is obviously the most important aspect of any large financial transaction. To see if the offer is accepted, a buyer will usually submit a lower price than the asking price if the market is flooded with buyers. They may submit an offer higher than the asking price if it is a seller's marketplace. There are high chances the property has received multiple offers.

The offer letter will also discuss closing costs. This can be complicated depending on the situation. Buyers are generally expected to pay approximately 5% of the total mortgage value on closing costs and related services. Sellers usually pay between 6% to 10% on closing costs. This includes commissions to their real estate agents.

In order to make their pitch stand out, a buyer might offer to pay a portion of the seller's closing cost if it is a seller's marketplace. The seller might do the same thing if it is a buyer's marketplace to try and get their property off the market quickly.

A buyer will include "earnest money" in their offer letter. This is simply a good-faith deposit that lets the seller know how serious they think they are. It's a good idea, especially if the property is high-value, to pay between 1% and 3 percent of the final purchase price as earnest money. It's all about making sure your offer stands out from the rest and convincing someone to take the time to listen to what you have to share.

An offer letter will also include any conditions that must be fulfilled BEFORE a property can be sold. The home is still under contract, but it may not be'sold'. This could mean it could go back on the market. These are the opportunities for buyers to cancel a contract if they don't meet any of the contingencies.

Some of the most common contingencies in real estate include, but are not limited too:

• Financial contingencies are usually used to prove that a buyer is pre-approved for the right amount of financing. The buyer can cancel their offer without penalty if they are unable to obtain the type of mortgage they desire.

• Appraisal contingencies require that the property be appraised at least for the purchase price but, ideally, higher. The seller can lower the price or cancel the offer if the appraisal is lower than this amount.

• Inspection contingencies require that a professional home inspector inspects the property using a fine-toothed brush to give the buyer an idea of the potential repairs. The buyer has the option to have the seller address certain issues or negotiate the price. Or, cancel the contract.

• These are quite common sales contingencies. A buyer will only buy a new home if their existing one is sold. Certain types of realty contracts may be contingent upon the sale of more than one home.

Usually, once the offer letter has been sent, there will be some back-and-forth between buyer and seller agents about things like price and contingencies. One of two outcomes will occur at this point: either the seller rejects the offer or they will negotiate with the buyer until the offer is accepted.

The home will be officially listed on Zillow and Redfin as "under contract" as soon as this happens.

It was important to know that just because a home has been "under contract", doesn't mean the transaction is complete.

A recent study by the National Association of Realtors found that roughly 8% of all real property contracts are being terminated before they reach their closing date. This is a significant increase from the average of 4 percent we have seen in the past few years. This may be partly due to the current economic uncertainty caused the COVID-19 pandemic. However, the point is that just because a house has been listed as "under contract", it doesn't mean that it is off the market.

Let's take, for example, a house that is under contract is subject to three sales. The potential buyer must be able sell their existing house. The seller has made an offer for a new property, but that transaction is contingent upon the sale of another property. The contract that you are interested in is terminated if any of these transactions fail.

Let's say that a professional inspector has inspected the property and found something the potential buyer is not too happy about. After some back and forth negotiations with the seller, it becomes clear that they are either unwilling or unable to repair the property themselves. The buyer can then decide to cancel the contract, which is very likely.

This is why many homes remain in the "under contract stage" for several weeks before closing. The property will be subject to home inspections and appraisals. Land surveys, title and deed checks are all part of this process. A buyer can cancel a contract at any time without any financial penalties. However, they will lose the due diligence fee they paid to the seller in North Carolina.

If all contingencies are met and there are no unexpected problems, closing day is very likely. Both parties were enthusiastic about the deal when it began, and everything went smoothly with the inspection and appraisal. The buyer will need to sign the closing documents and pay any fees. Once that's done, they can move into the house of their dreams.

This is the part where a home is listed on real estate sites as "pending". This status means that all conditions have been met and that the contract is being executed. This stage is less likely to result in a transaction falling through. Some real estate agents might not be open to accepting additional offers while the transaction is pending. However, you can still make an offer in the pending phase. It's not possible to say "no", but it can happen.

However, it's best to not consider yourself "out" until then.

Even if you love the home, there's always the possibility that it will not go through. You should submit a backup proposal through your agent. This basically states that you are "next in Line" if the deal fails for any reason.

There is a good chance that others have the same idea. Therefore, you should make your backup offer as appealing as possible. It is important to take the offer as seriously as if you were not putting it on contract, especially if it is in a high-value location.

There is nothing more disappointing than discovering that a home you love is under contract. There are still many things that could go wrong, so don't lose heart.

A buyer must be able to obtain financing. This is not always an easy task. A home inspection must be done. This gives the buyer every chance to cancel a contract if they are not satisfied with something. You won't necessarily find out the answer, but you will have an opportunity to inspect the home if your backup offer is accepted.

It is important to note that if one party fails to comply with any of the conditions and contingencies in a transaction, the contract will be terminated and the house put back on the market. You shouldn't lose heart yet, because you never know what could happen in an industry as dynamic and complex as real estate.

Let us know if you find a home under contract. We will likely be able find you a home that is similar to it or better. Connect with any Realtor in Raleigh to help you find the perfect home.

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