Finding a house that meets all your needs isn't easy. Even when you have found your perfect home that is within your budget, you can still have problems.
When there are many more buyers than sellers, the competition can mean you end up disappointed. In these situations, you will be more likely to find a listing that is under contract. But if that happens, do you still have a chance to buy the home?
We take a look at the meaning of under contract so that you have a better idea of whether you have to forget about a home you love or not.
What is the Meaning of Under Contract?
When the seller has accepted an offer, the house is under contract. However, this isn't the end of the story, and contingencies have to be met before closing.
It might be 1 or 2 months before the sale is finalized, and closing can occur. The contingencies have to be met during this time, but things can go wrong.
Dealing With Contingencies
The sale could be contingent on the buyer securing financing, and then the home needs to be appraised high enough for the lender to approve the mortgage. Lenders will not loan more money than the home is worth. So if the offer is higher than the appraised value, an appraisal contingency could be triggered, allowing the buyer to walk away from the deal with their earnest money.
The buyer does have the option to make up the difference, but this is often very difficult when their finances are already stretched. Though there are other options when the appraisal comes in lower than expected, it could signal the end of the under contract listing.
The Mortgage Contingency is a Big Hurdle
Even if this doesn't happen, and the appraisal matches or is higher than the offer, there can still be problems with financing. The financing contingency allows the buyer to back out of the purchase if they cannot get the home loan they expect.
Things can happen between pre-approval and the final mortgage application that changes how much the borrower can finance. If, for example, the buyer takes out another loan after pre-approval, their debt to income ratio will change, potentially reducing the amount a lender is willing to finance.
The Home Inspection is Another Bridge to Cross
Other contingencies can get in the way of a successful home sale. Home inspections are an essential part of the purchase, and there is a contingency for that.
If the inspector finds some severe issues with the home, the buyer and seller might reach an agreement to deal with it. But if this doesn’t happen, the under agreement status could end, and the home will then be available for another buyer.
There could also be a contingency that requires the buyer to find a seller for their own home. The home sale contingency is another way that the buyer could lose out on their purchase if they have difficulty selling their home.
What is Active Under Contract?
A property listed as active under contract is still under contract with contingencies, but the seller might be more open to receiving backup offers. The home is still being actively marketed, and showings are still taking place.
If you make an offer, and the first buyer doesn't complete all their contingencies, the seller might come to you. The downside for sellers is that the days on the market continue to increase like the home is for sale.
Is There Any Difference Between Under Contract and Pending?
In some listings, you might see homes that are pending. Depending on the listing service, this can mean the same thing as under contract. More generally, if the contingencies have been met, the seller is unlikely to accept further offers.
Even at this late stage, there are still things that can get in the way of a successful purchase, like a final inspection. So if you like a home listed as a sale pending, it might still be worth asking your real estate agent about it.
It is one of the common listing statuses you will see in the multiple listing service (MLS).
How Likely is it for a Sale to Fall Apart?
Despite the many contingencies that need to be met before the sale will complete, most of these will be successful. Most home sales are processed within two months of signing a purchase contract, and almost all within four months.
Though only a relatively small amount of home sales fail, they still happen, and you might be lucky.
What Happens When a Home Buying Transaction is Cancelled?
If a buyer cannot complete their contingency requirements within the time allowed in the purchase contract, it can be canceled. Another buyer can step in with an earnest money deposit and sign a new purchase contract if that happens.
However, if you find yourself in that situation, you need to know why the previous transaction failed. Perhaps the home inspection found severe problems leading to the buyer walking away. If that is the case, you’ll want to learn about it in advance so that you don't waste your time on a property with significant problems.
If the appraisal value came in lower than the offer, will you find yourself in the same situation? If your offer is similar to that of the first buyer, you'll likely face the same problems if you are using a lender.
It's also possible the title search found a title problem that needs to be resolved before the property can close.
Whatever the reason for the first buyer not completing their purchase, you will be better off knowing. This will allow you to make a more informed decision about whether you want to continue with an offer.
Final Thoughts
When you finally find a home that seems right for you, it can be unpleasant to discover that it is under contract. While these homes will be sold most of the time, there is a slight chance that something will go wrong.
If an appraisal comes in low or the buyer has financing problems, you could get your chance to buy. This could provide the opportunity to buy a home you didn't think you would get. As long as you make sure you know the cause of the purchase falling through and are happy to proceed, you could buy your perfect home.
