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Under Contract vs. Pending Sale in Real Estate Transactions

By RealtyBiz News | July 25, 2023

When you're looking to buy a home, you'll likely come across the terms "under contract" and "pending sale." These terms are often used interchangeably, but there is a subtle difference between them. This means that it’s crucial to understand the difference between a pending sale and an under contract and what they mean for a buyer or a seller. Let’s take a closer look.

ContractPendingSignInFrontOfANewHouse

What It Means to Be Under Contract or Pending Sale

In real estate, the term “under contract” means that the buyer has made an offer on a property and the seller has accepted. This means that the buyer and seller have agreed on the terms of the sale. However, the sale is not yet final. There may still be contingencies that need to be met, such as a home inspection or appraisal. If one of these contingencies is not met, then the sale can still be halted for the specific reasons set out in the contingency.

Meanwhile, “pending sale” is different. Once a property under contract has met all contingencies associated with that contract, there are no obvious circumstances that will prevent the sale from going through. At this point, the property is typically removed from the market and is unavailable for other showings. A home that’s listed as “pending sale” is much more likely to be sold unless something catastrophic or unforeseen happens.

Contingencies that Can Disrupt a Home Sale

Since a home that’s under contract can have its sale derailed by contingencies, it’s important to understand what they are. Contingencies are conditions that must be met in order for the sale to go through. For example, a buyer might have a contingency that the home must pass a home inspection. If the home fails the inspection, the buyer can back out of the sale. There are many other different types of contingencies that can be included in a real estate contract, as well. Besides a home inspection contingency, some common contingencies include:

  • Appraisal contingency: This contingency allows the buyer to back out of the sale if the property doesn't appraise for the agreed-upon price.
  • Financing contingency: This contingency allows the buyer to back out of the sale if they are unable to get financing.
  • Seller's disclosure contingency: This contingency allows the buyer to back out of the sale if the seller fails to disclose any known defects with the property.
  • Occupancy contingency: This contingency allows the buyer to back out of the sale if they are unable to move into the property on the agreed-upon date.
  • Tenant buyout contingency: This contingency allows the buyer to back out of the sale if the property is currently rented and the tenants refuse to move out.

It's important to understand the contingencies in a real estate contract before you make an offer on a property. This will help you to know what you're getting into and what your options are if something goes wrong.

CloseUpOnARealEstateSalePendingSign

Why Are Contingencies Important?

Contingency clauses are important because they protect both the buyer and the seller. They allow the buyer to back out of the sale if something goes wrong, such as if the home doesn't pass the home inspection. This protects the buyer from being stuck with a property that they don't want. Contingency clauses also protect the seller from having to sell the property to a buyer who is unable to complete the sale. For example, if the buyer is unable to get financing, the seller can back out of the sale. This protects the seller from having to take the property off the market and start over.

Contingencies also help provide availability to sellers looking for backup offers. Generally, sellers cannot accept another offer on their house if it is under contract. Once a seller accepts an offer and signs a contract, they are legally bound to that contract until it is either fulfilled or terminated. However, if the seller has a contingency in the contract that allows them to back out of the sale if they receive a better offer, then they may be able to accept another offer. 

It is important to note that even if a seller is able to accept another offer on their house while it is under contract, this doesn’t mean they owe the first buyer anything. In many circumstances, they may still be liable to the original buyer for damages. This is because the original buyer may have incurred expenses in the belief that the sale would go through, such as paying for a home inspection or appraisal. In situations such as this, the seller may be obligated to reimburse their first prospective buyer.

The Last Word on Under Contract Vs. Pending Sale

If you’re a first-time home buyer or even one that’s been around the block a few times, it’s crucial to understand the ins and outs of real estate transactions. Nowhere is this more true than understanding the terms “under contract” and “pending sale”, as knowing the difference between a pending sale and under contract will ensure that you know what you’re getting into when you make an offer on a property.

It’s likewise important to understand how contingency clauses work, especially because they can stop a real estate transaction in its tracks, even if you’re considered under contract. Contingencies are essential because they protect both the buyer and the seller. By understanding the different types of contingencies that can be included in a real estate contract, you can make sure that you're protected in the event that something goes wrong.

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