REAL ESTATE DICTIONARY:
These two little words (also known as “Pending”) can bring butterflies to you no matter which side of the transaction you’re on.
But what does it mean to go under contract? To explain, we will highlight a few scenarios from what could happen when you are buying or selling a home.
From a seller’s perspective:
“Yes! We’re under contract and my house is SOLD!”
From a buyer’s perspective:
“YES! I’m/We’re buying a house!”
Hold on a second,
Hold the phone,
Call your agent.
Under contract does mean what you think it means, but not always. Here are a few questions you might not have known that you needed to ask.
- What does “Under Contract” or “Pending” mean?
- If I see a listing that is under contract, does that mean it’s off the market?
- If I’m under contract, does that mean the deal is sealed?
“Under Contract” means the contract has been accepted.
Seller puts house on market + Buyer makes offer + Seller accepts offer = Under Contract
To get a little more technical: a buyer has made an official offer and the sellers have officially accepted the terms and price made by the buyer.
Maybe the buyer made a low offer, a high offer, or they offered asking price. The buyer could have included contingencies, either way…. both sides (sellers & buyers) made a mutual agreement to accept each other’s terms and proceed with the transaction.
Now you’re under contract!
..this doesn’t always mean the house will close. Why is that?
As a buyer:
Almost every home will be inspected. Once the inspection takes place, this will show the buyers what is “wrong” with the home. Whether it be a leaking pipe, unleveled a/c unit, or the oven won’t heat; if the seller is not willing to fix the issues or offer some sort of solution, the contract may be terminated if the buyer doesn’t agree to take on the repairs themselves after closing.
After the inspection comes an appraisal. If the appraiser decides the house is worth less than the agreed upon sales price, the seller can choose to reduce the price so the buyer can obtain a loan, the buyer can bring the difference to closing in the form of a cashier’s check, or the parties can agree to terminate the transaction. An appraised value that is lower than the sales price is a big deal because a mortgage loan is based on the appraised value of the home and the bank won’t loan you more than appraised value.
In some cases, the buyer may be able to afford to inject the cash at closing, but if the home isn’t worth it to them, they won’t pay over the appraisal value.
As a seller:
Your inspection came through, everything is great. Your appraisal came through, your asking price is right on par with the agreed upon sales price, but this doesn’t always guarantee a closing.
Many buyers are encouraged to get a “pre-approval” letter before making an offer, but “pre-approved” does not mean “pre-qualified”. A potential buyer will submit a preapproval letter with their offer, but once the offer is accepted it is up to the bank to continue with the loan process. When that process continues, the buyers are investigated further by the loan officer. All their finances, credit history, income, gifts, everything is looked in to. If something on their credit history, or DTI doesn’t add up for the loan officer or information can’t be acquired during the loan process, the bank may decide they can’t fund the loan, which, unfortunately, leads to a terminated contract and you’re back on the market.
There can be unanticipated things that could happen on either side of a transaction.
Your best bet is to always work with a Real Estate Agent that has the experience, knowledge, and determination to make the sale HAPPEN. Buying or selling a home can be very emotional and taxing. Always talk to a strong lender and an educated agent or broker when you are considering buying or selling real estate. Be honest on your loan application. Trust your agent to help you make the best choice and listen to what they have to say. Your main goal is to go “under contract” and then get the “SOLD” sign in your yard.
Ready to buy, sell, or invest in real estate in Northwest Arkansas? Call me, Jill Bell, at 479.799.3023, and let me help you do it with confidence!