When buying or selling a property, you might come across the term “under contract.” This phrase can cause confusion, especially if you’re not familiar with the real estate industry’s jargon. In this article, we’ll explain what “under contract” means, what it entails, and how it affects the buying or selling process.
Understanding the Term “Under Contract”
When a property is “under contract,” it means that a legally binding agreement has been reached between the buyer and seller. This agreement outlines the terms and conditions of the sale, including the purchase price, financing, contingencies, and closing date. The buyer and seller have signed a contract that acknowledges and agrees to these terms, making the sale of the property legally binding.
The Process of Being “Under Contract”
When a buyer makes an offer on a property, the seller can accept, decline, or counteroffer. If the seller accepts the buyer’s offer, they enter into a phase called “under contract.” The buyer then typically deposits earnest money, which is a deposit made to demonstrate their commitment to purchasing the property. The seller takes the property off the market while the buyer secures financing and completes inspections.
During the under contract phase, both parties have specific obligations and deadlines to meet. The buyer is responsible for completing inspections and securing financing, while the seller is responsible for completing repairs or other agreed-upon conditions. If either party fails to meet their obligations or meet their deadline, the contract could be voided.
The Importance of Being “Under Contract”
When a property is under contract, the buyer has the right to purchase the property at the agreed-upon price, and the seller must sell the property to the buyer. The contract serves as a legal document that outlines the terms of the sale, protects both parties, and ensures that the transaction runs smoothly. If either party violates the terms of the contract, the other party can take legal action.
How Being “Under Contract” Affects the Buying and Selling Process
Once a property is under contract, the buyer and seller are legally bound to follow the terms of the contract. This means that the buyer cannot back out of the sale without facing legal repercussions, and the seller cannot accept another offer.
During the under contract phase, the buyer typically has a specified period to complete their due diligence, including inspections and financing. If the buyer discovers any issues during this period, they can negotiate with the seller to resolve the issues or terminate the contract. If the buyer fails to complete their due diligence or secure financing within the specified period, the seller can choose to keep the earnest money and put the property back on the market.
Frequently Asked Questions
What happens if a buyer backs out of a contract?
If a buyer backs out of a contract, they risk losing their earnest money and could face legal action from the seller. The contract outlines the terms of the sale and the obligations of both parties, including the penalties for breaching the contract.
Can a seller accept another offer while under contract?
No, a seller cannot accept another offer while under contract. The contract legally binds both parties to the agreed-upon terms, and neither party can back out without facing legal repercussions.
What happens if the seller fails to meet the terms of the contract?
If the seller fails to meet the terms of the contract, the buyer has the right to take legal action. Depending on the circumstances, the buyer could sue for damages, demand specific performance, or terminate the contract.
Can a buyer terminate a contract after the due diligence period?
If the buyer discovers any issues during the due diligence period, they can negotiate with the seller to resolve the issues or terminate the contract. If the buyer terminates the contract, they risk losing their earnest money.
Can a buyer waive contingencies to make their offer more attractive?
Yes, a buyer can waive contingencies to make their offer more attractive to the seller. However, waiving contingencies means that the buyer is willing to take on more risk, and it could result in financial losses if issues are discovered after the sale.
Conclusion
Being “under contract” means that a legally binding agreement has been reached between the buyer and seller, outlining the terms and conditions of the sale. During the under contract phase, both parties have specific obligations and deadlines to meet, and the contract serves as a legal document that outlines the terms of the sale, protects both parties, and ensures that the transaction runs smoothly. If you’re buying or selling a property, it’s important to understand the under contract phase and the legal obligations it entails.
FAQs
- What happens if a buyer backs out of a contract?
- If a buyer backs out of a contract, they risk losing their earnest money and could face legal action from the seller. The contract outlines the terms of the sale and the obligations of both parties, including the penalties for breaching the contract.
- Can a seller accept another offer while under contract?
- No, a seller cannot accept another offer while under contract. The contract legally binds both parties to the agreed-upon terms, and neither party can back out without facing legal repercussions.
- What happens if the seller fails to meet the terms of the contract?
- If the seller fails to meet the terms of the contract, the buyer has the right to take legal action. Depending on the circumstances, the buyer could sue for damages, demand specific performance, or terminate the contract.
- Can a buyer terminate a contract after the due diligence period?
- If the buyer discovers any issues during the due diligence period, they can negotiate with the seller to resolve the issues or terminate the contract. If the buyer terminates the contract, they risk losing their earnest money.
- Can a buyer waive contingencies to make their offer more attractive?
- Yes, a buyer can waive contingencies to make their offer more attractive to the seller. However, waiving contingencies means that the buyer is willing to take on more risk, and it could result in financial losses if issues are discovered after the sale.
