What does “under contract” mean?
Contingencies Contingencies refer to the conditions listed in the offer that must be met before closing, or else the buyer can back out of the contract without penalty. Additionally, common contingencies may vary in different regions and in buyer’s or seller’s market, and buyers sometimes offer to waive certain contingencies to make their offer more appealing to the seller.
Common conditions include:1
- A property appraisal This values the property to help ensure the buyer isn't paying significantly more than the property is worth
- A title search This verifies that the property has no liens against it and uncovers any other ownership issues
- A home inspection This lets the buyer know if the property has any serious damage or defects
- A disclosure form This highlights recent renovations, past pest problems, lead paint, or other issues
- A sale contingency This says the buyer must sell their existing home before purchase is completed
- A mortgage contingency This requires that the buyer receives mortgage approval before the sale
- Repairs and upgrades These can be specific action items, such as painting, cleaning, or repairs
Escrow An escrow company, real estate title company, or the seller's real estate agency holds the buyer’s money until the deal is closed and the home officially changes hands.2 Holding money in escrow provides a safety net for the seller, guaranteeing that the buyer has the money for the purchase, and that the money will be handed over once the title is transferred. It also helps protect the buyer from a fraudulent seller who may hold no actual claim to a title. The escrow holder is usually someone from the closing company, an attorney, or a title company agent.
Closing and possession dates. The closing date, also called the settlement date, is the day the buyer and seller agree to make the sale official. This is the deadline both parties work toward to meet all requirements laid out in the purchase and sale agreement. The buyer must have funding lined up and ready, while the seller must make sure to meet all agreed upon conditions.
The date of possession is the day both parties agree that the buyer can move into their new home. The closing and possession dates are often the same day, but not in all cases. Sometimes, a buyer will agree to allow the seller additional time to stay in the house after closing, usually in a rent-back situation, with the seller paying rent to the buyer until they’re able to move. Buyers may offer flexible closing and possession dates to make an offer more appealing to sellers.
The purchase and sale agreement. The purchase and sale agreement, also called the P&S or purchase agreement, is the legally binding contract outlining all details of the home sale transaction, including key dates, conditions, and other terms.
Negotiations begin immediately following the home inspection, or sooner, if there’s no inspection. The buyer’s agent or lawyer usually provides the initial draft of the contract, which often becomes an evolving document that goes through several rounds during negotiations. Both parties usually sign the P&S agreement 10 to 14 days after the offer is accepted.