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What Does It Mean Under Contract In Real Estate

In the world of real estate, being under contract is a significant milestone for both buyers and sellers. It represents a commitment made between the parties involved and marks the beginning of the legal process. But what does it truly mean to be under contract in real estate?

When a property is under contract in real estate, it means that the buyer and seller have reached an agreement on the terms and conditions of the sale. This agreement is typically documented in a contract and includes details such as the purchase price, closing date, contingencies, and other relevant information. Once the contract is signed by all parties, it becomes legally binding, and both the buyer and seller are obligated to fulfill their respective obligations as outlined in the agreement.

Understanding Under Contract in Real Estate

When buying or selling a property, you may encounter the term “under contract.” But what does it mean under contract in real estate? Under contract refers to the stage of a real estate transaction where the buyer and seller have come to mutual agreement and have entered into a legally binding contract. This contract outlines the terms and conditions of the sale, including the purchase price, contingencies, and closing date. It signifies that both parties have agreed to proceed with the deal and are legally obligated to fulfill their respective obligations.

During the under contract phase, the property is considered to be off the market, meaning that the seller cannot entertain offers from other potential buyers. This gives the buyer a sense of security, knowing that they have secured the property and can move forward with due diligence and financing arrangements. However, it’s important to note that being under contract does not guarantee the closure of the deal. Various factors such as inspections, appraisals, and financing can still affect the final outcome. Let’s delve deeper into the different aspects of what it means to be under contract in real estate.

The Elements of an Under Contract Agreement

Purchase Price and Terms

The purchase price is one of the most essential elements of an under contract agreement. It specifies the amount the buyer is willing to pay for the property and serves as the foundation for the transaction. The contract may also include details about any additional terms, such as whether the purchase is contingent on the sale of the buyer’s current property or if the buyer requires a specific financing arrangement. These terms are negotiated between the buyer and seller and are typically outlined in writing within the contract.

The under contract agreement will define the timeframe in which the transaction must be completed. This includes the closing date, which is the date when the buyer takes possession of the property and the seller receives payment. Both parties must adhere to the timeline specified in the contract, unless mutually agreed upon changes are made during the course of the transaction.


Contingencies are conditions or requirements that must be met for the under contract agreement to proceed. These contingencies protect the buyer from unforeseen circumstances or defects in the property, and they allow the buyer to back out of the deal without penalty if certain conditions are not satisfied. Common contingencies include:

  • Home inspection contingency: This allows the buyer to hire a professional inspector to evaluate the property. If significant issues or defects are discovered, the buyer may negotiate repairs, request a price reduction, or choose to cancel the contract.
  • Financing contingency: This gives the buyer a specified period to secure financing for the purchase. If the buyer is unable to secure a loan, they can back out of the deal.
  • Appraisal contingency: This contingency ensures that the property is valued at or above the agreed-upon purchase price. If the appraisal comes in lower, the buyer may negotiate a lower price or terminate the contract.

Earnest Money Deposit

As a show of good faith, the buyer typically provides an earnest money deposit when entering into an under contract agreement. This deposit, also known as a good faith deposit, demonstrates the buyer’s serious intent to proceed with the transaction. The amount of the earnest money deposit is negotiable between the buyer and seller, and it is held in an escrow account until the deal is finalized. If the buyer withdraws from the contract without a valid reason, the earnest money deposit may be forfeited to the seller as compensation for taking the property off the market during the under contract period.

Navigating the Under Contract Phase

The under contract phase can be an exciting yet nerve-wracking time for both buyers and sellers. Here are a few tips to navigate this stage of a real estate transaction:

Understand the Contract

It’s crucial to thoroughly review and understand the under contract agreement before signing. If you have any questions or concerns, seek clarification from a real estate attorney or agent. Ensure that all terms and conditions are clearly outlined, and be aware of the deadlines and contingencies specified in the contract.

Perform Due Diligence

During the under contract phase, the buyer has the opportunity to conduct due diligence on the property. This may involve hiring professional inspectors, conducting a title search, reviewing any homeowner association documents, or obtaining necessary permits and certificates. Take advantage of this time to ensure that the property meets your expectations and to address any concerns or issues that arise during the due diligence process.

Communicate Effectively

Open and clear communication between the buyer, seller, and any involved real estate agents is key to a smooth under contract phase. Keep all parties updated on the progress of any inspections, appraisals, or financing arrangements. Promptly respond to any requests for information or documentation to avoid delays in the process.

Be Prepared for Contingencies

Understand that the under contract period is not a guaranteed sale. Contingencies provide opportunities for negotiations, adjustments, or even the termination of the contract. Be prepared for potential contingencies and work with your real estate agent to navigate any challenges that arise. Remember that flexibility and compromise may be necessary to reach a successful closing.


Being under contract in real estate signifies that the buyer and seller have reached an agreement and have entered into a legally binding contract. It is an important milestone in the buying and selling process, as it represents a commitment from both parties to proceed with the transaction, subject to fulfilling certain conditions and contingencies. Understanding the elements of an under contract agreement and navigating this phase effectively can help ensure a successful real estate transaction. If you’re interested in learning more about the under contract phase and the intricacies of real estate transactions, feel free to explore our resources and articles on this subject.

In real estate, being “under contract” means that a buyer and seller have agreed to the terms of a purchase agreement. It signifies that both parties have reached an agreement on the price, closing date, and other important details of the transaction.

Once a property is under contract, it typically enters a period of due diligence where the buyer investigates the property further, such as conducting inspections and securing financing. During this time, the property is generally considered off the market for other potential buyers.

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