When you’re browsing houses for sale, either online or IRL, you’ll likely encounter the terms “under contract,” “pending sale,” and “contingent” in your search.
These real estate terms may seem confusing initially, but they play a crucial role in buying or selling property.
And if you’re new to the home buying process, there’s nothing more exciting than when a seller says “yes” to a bid you’ve placed — success after all that searching! — but there are several steps between having an accepted offer and getting the keys to your new home.
Understanding what is meant by these different stages — from contingent status to pending status to finally closing the sale — is essential for all parties involved in the sale of real estate.
In this article, we’ll explore the meaning of these terms, their significance for both homeowners and home buyers alike, and the role each plays with respect to effectively executing a real estate contract.
Let’s get started!
- A home is under contract when a buyer’s offer is accepted by the seller
- For other buyers interested in the same property, under contract status generally means that the seller is accepting other bids in case the original buyer backs out for any reason.
- Home contingencies are contractual clauses that need to be satisfied in order to complete the sale of a property.
- A house with pending status has fulfilled all conditions and enters the escrow phase.
When you come across a property with a listing status of under contract, it indicates that a seller has already accepted a buyer’s offer, and its status will fall under two possible scenarios: “contingent” and “noncontingent.”
The first, contingent status, means that the buyer or seller (or both) must first meet the conditions of the contract (contingencies) before the sale can be finalized.
For example, one condition a seller may be required to complete is certain renovation work before the sale can close (for instance, a clause stipulating that the roof must be replaced).
If the criteria are not sufficiently met (meaning contingencies are not satisfied), the deal may still proceed, perhaps with the parties reaching an agreement on renegotiated terms.
Otherwise, the deal will likely fall apart and the real estate will be listed for sale once again.
The second scenario is when a property’s status is listed as noncontingent under contract.
In this situation, the buyer’s offer does not include any specific conditions and they agree to purchase the property in its current state (“as-is”), and at the agreed-upon price.
This usually translates to higher chances of completing the sale because the buyer has waived contingencies — essentially forfeiting their biggest option to cancel the contract.
Active under contract
This term is related to under contract, with the key difference being (like the name says) that the seller or seller’s agent is actively accepting other offers on the house in the event the original offer falls through.
In certain real estate markets — locations where the inventory in one of limited supply and heavy demand — it is common for owners and real estate agents to seek competitive offers (a “bidding war”) on a property before accepting one (in other words, it’s not “first come, first served” as far as placing bids is concerned).
Likewise, additional offers may be encouraged even after a property is under contract with an accepted offer — if the first offer fails to close, this guarantees that other interested parties are ready to commit.
You can take advantage of this situation by submitting a backup offer at this stage that surpasses the current one in terms of attractiveness, possibly giving you an edge should the original deal fall apart.
Bear in mind that this means you won’t be the only prospective buyer looking to acquire the property, and will encounter competing offers as well.
(We will also add another wrinkle to this process with the “kick-out contingency” described below.)
Note: Remember that a backup offer, once accepted, is a legally binding contract, so take the time to consult with your real estate agent and discuss the various terms and conditions involved.
You may also encounter the “pending” status when scanning real estate properties.
Pending means that both the buyer and seller have fulfilled all the necessary conditions and provisions specified in the contract.
The parties involved are in the final stages of the transaction, which include signing all necessary documents and confirming the sale.
Once a property is marked as pending, all contingencies have been met or waived, the house is removed from the multiple listing service (MLS), officially taken off the market, and the sale of the property enters the escrow phase.
While a pending home indicates that the contract is indeed closer to being a “done deal,” it’s not yet finalized.
For example, if the buyer’s financing is not secure enough to proceed with the sale, or if issues are discovered during the appraisal process — these last-minute curveballs can potentially derail the sale. In such cases, the sale is canceled, and the home goes back to the market.
Generally speaking, a listing agent can no longer accept offers on a house if the sale is pending; however, it never hurts to ask!
If the current deal collapses on a home you really like, just by reaching out you may find yourself first in line once the listing status changes and it goes back on the market.
The term contingent refers to the conditions that are associated with a property under contract, the criteria that must be met in order for the deal to close.
Simply put, a contingent contract means the sale of a house cannot proceed until specific clauses are satisfied.
This could include a stipulation where the sale is put on hold until the buyer successfully sells their own house, or conditions that require the seller to have specific work done to the property before the sale can be finalized.
As long as the parties satisfy the agreed-upon expectations that make the contract mean contingent (versus noncontingent), the sale can move forward as planned.
Most common contingencies in real estate
Whether you are a prospective buyer or a homeowner moving forward with a home sale while still entertaining backup offers, it is crucial to understand the various types of conditions that exist for real estate listings under contract.
Following is our list of the most common contingencies you should be familiar with.
Appraisal contingencies require a licensed appraiser to assess the value of the property based on specific criteria and federal guidelines.
The appraiser compares the features of the house with other properties in the area — those that are comparable, known as “comps” in the industry — to ensure that the selling price aligns with the market value.
In the event that the value comes in under the listed purchase price, which means the contingency has not been met, the buyer may choose to back out of the sale without incurring penalties, or renegotiate terms in order to proceed with the sale.
This evaluation is almost always mandatory when the buyer is seeking a mortgage to purchase the property — the lender will require an appraisal, and it’s imperative for the appraiser to be a neutral and independent party — and it is generally the buyer who pays for this cost.
Home sale contingency
A home sale contingency is a condition in a real estate contract that allows a buyer to make an offer on a new property, contingent upon selling their current home within a specified time frame.
If the buyer cannot sell their current home within that time, they can cancel the purchase contract without penalties.
This contingency safeguards buyers who need to sell their existing home before purchasing a new one.
However, keep in mind that this type of contingency can introduce significant delays and potentially discourage sellers looking for a quick and straightforward transaction.
Home inspection contingency
These contingencies typically specify a time frame within which the buyer has to hire professional inspectors to assess the property’s condition.
If any significant issues or defects are discovered during the home inspection, the buyer may have the option to negotiate repairs, request a reduction in the purchase price, or even withdraw from the contract without any penalties (we’ll touch on this very aspect again under “can a buyer change their mind?” below).
These contingencies typically set a specific period of time during which the buyer must secure a mortgage or other form of financing.
If the buyer can’t obtain the necessary financing within the specified time frame, they can terminate the contract without penalties.
The financing contingency provides you with an option to back out of the contract if your loan falls through, without losing any earnest money you have already paid.
While this is beneficial for buyers, some sellers may prefer cash-only offers to minimize the risk of a buyer’s financing falling through.
A kick-out clause is a provision in real estate contracts that allows the seller to accept a better offer from another buyer, even after accepting an initial offer.
If a more favorable offer comes in, the seller can “kick out” the current buyer and/or give them a chance to match the terms or remove contingencies within a specified time frame.
If the initial buyer fails to do so, the seller can proceed with the new offer.
When a homeowner experiences financial difficulties, they may opt for a short sale, which involves selling their property for less the mortgage amount owed.
Banks or mortgage lenders often agree to this to avoid costly foreclosure procedures and save time and money.
During a short sale, the homeowner must obtain approval from the bank to proceed with the sale.
The bank carefully evaluates the homeowner’s financial situation and assesses the market value of the property.
If the bank determines that the necessary conditions are met, they grant approval for the property to be listed for sale, allowing potential buyers to consider purchasing it.
Once the contract is signed, can a buyer change their mind?
From a legal standpoint, a buyer has the right to withdraw from a contract if it contains conditions — the criteria that must be met — and those conditions aren’t or can’t be satisfied.
If any of the conditions/terms outlined in the contract are overly restrictive or unmet and the buyer has a valid reason for canceling — for example, a home inspection reveals serious, previously undisclosed home repair issues — they can choose to reject the contract without facing financial penalties, even if they have deposited money at the beginning of the contract.
However, once the contract has passed all contingencies and enters the escrow phase, canceling the sale becomes more challenging.
At this stage, a buyer who refuses to sign the contract will likely lose their earnest money deposit and could face legal action from the seller (the buyer, if they “just want out,” will in fact be breaching the contract).
In the event that the original buyer does back out from the deal, realtors can then continue with other prospects, starting the home-buying process again with a backup offer.
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