What Does Under Contract Mean in Real Estate?

If you've searched for homes through your local multiple listing service, you may have come across various terms that describe the property's sale status. An active listing means the house is on the market and available for purchase. A pending sale is one that’s moving toward closing. An "under contract" status means there’s an accepted offer on the house, but the sale is still in an early, and perhaps precarious, stage.

TL;DR (Too Long; Didn't Read)

When a home is under contract, it means that the buyer and seller have reached an agreement. It doesn't mean the house is sold, and the deal could still fall through.

Contract Basics

A valid contract must meet four criteria. First, there must be an offer to perform some action — in this case, the buyer promises to pay for the home and the seller agrees to transfer ownership. There must also be consideration, which is payment with something of value.

Although consideration for a home sale is usually money, it might also be nonmaterial, such as gratitude or affection. In addition, the seller must accept the buyer’s offer exactly as written and communicate his acceptance to the buyer. Finally, there must be a meeting of the minds, which means the parties agree on the contract's terms exactly as they’re stated.

Under Contract

A home is under contract when each of the four criteria has been met, but in most states, the deal is only enforceable if it's in writing. Therefore, the home is officially under contract once its buyer and seller have signed a sales contract and the seller has communicated acceptance to the buyer. The terms of the contract aren't officially met until closing day, when consideration and ownership of the home changes hands.

Contingency Contracts

You'll occasionally see the word "contingent" in a home's under-contract status. This means the contract contains one or more stipulations. The sale proceeds only if the stipulations are met. Buyers often make offers contingent on their ability to secure financing, whereas sellers may make counteroffers contingent on the successful closing of a new home.

The home's status returns to "active" if the sale falls through and the home goes back on the market. The status changes to pending after the contingencies are met.

Backup Offers

You can make a backup offer on a home that's under contract. However, the seller can only accept your offer if it's contingent on the current contract terminating before the sale closes. In the unlikely event the seller accepts your backup offer, you'll be unable to make an offer on another home unless it's contingent on your backup deal not closing.

Because sellers seldom accept offers under these circumstances, you likely would trade the ability to buy an available home for the hope of purchasing one that's currently off the market.

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