What Does It Mean When A House Is Under Contract?

If you have been looking for a new property to invest in through a multiple listing service or a website, you will likely have seen that some are described as already being “under contract”. A property that is listed as “under contract” has had an offer made, and provisionally accepted by the seller.

However, this is an early stage of the transaction, and offers can still fall through.

An accepted offer in the real estate business, or in this case, is a formal written agreement that is highly likely to go through to the next stage of the transaction, where it gains the “under contract” status.  Investors can still consider these contracted properties to technically be for sale. So, what does it mean when a house is under contract and is it still an investment option for you?

What Does “Under Contract” Mean?

When a property is being sold, a contract must meet certain criteria for the transaction to be concluded successfully. A house is under contract until such a time as all the criteria have been met by both the buying and selling parties, which will include laying out the terms of the sale and meeting all its terms.

Technically, even if a property has an offer and initial acceptance from the seller,  if a written contract has not been created the property could still be up for sale to the right investor when the first buyer pulls out.

A house is only considered to be formally under contract when the seller and potential buyer create a sales contract,  and there has been some communication of acceptance between both participating parties. The transaction is only finalized and concluded, however, on closing day when ownership of the property changes hands from seller to buyer and all the terms of the sales contract have been successfully met.

How Contracts Can Fall Through

When a property has an “under contract” status on an MLS, several criteria need to be met before the offer is officially accepted, which means it’s not too late for you as an investor to make an offer on a property of this nature.

When making an offer on a property, a buyer has to come up with financing, a property inspection will need to be done and they will have to meet any other conditions the buyer has set prior to claiming the property as their own. Any legitimate purchase and sale contract will specify the requirements that need to be taken by both the buyer and seller for the sale to be completed.

If either of these parties were to fail to meet these requirements, the contract could fall through and realistically, either party could then back out of the sale.

What To Do If You Want To Buy A House That Is Under Contract

If you find a property of interest but it’s already under contract, don’t write it off as an option just yet! There is still a chance that the offer might fall through and that a buying condition might not be met, allowing you to make an offer and get it accepted quickly. It’s common for properties that are taken under contract to still be marketed until the sale is officially concluded, so keep your eye out for opportunities to make an offer. 

At any point during these negotiations, the seller of the property can accept a backup offer – if you make an offer at the right time, you could be the next buyer in line.

To ensure your offer is taken seriously by the seller, make sure it is favorable and add documentation that can support it, such as a proof of funds letter. If the original buyer falls through, you will be ready to take their place – it’s all a matter of patience and preparation.

Final Tips

So what does it mean if a house is under contract? That it’s not too late, and you could still purchase it should the circumstances be in your favor. Until a contract is signed, and all its criteria met, nothing is set in stone and the seller will likely be looking for back-up options just in case.

The most successful real estate investors are the ones that think out of the box when looking for opportunities, which is why you should consider making an offer on a property that is already under contract.

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