In real estate, the term “under contract” signifies a crucial stage when buying and selling in Massachusetts.

When a property is under contract, a buyer makes an offer, and the seller accepts it. However, the sale has not yet been finalized. I have put significant effort into educating you on the following:

• The exact meaning of “under contract” in real estate.
• The steps involved in moving from “under agreement” to closing.
• The implications of this status for both buyers and sellers.

As a Massachusetts Realtor, buyers and sellers have asked me about listing statuses for the past thirty-eight years. The status of under contract is one of the common ones. It is also referred to as active under contract.

Let’s examine real estate’s essential “under contract” meaning and details.

What Does Under Contract Mean For Massachusetts Buyers and Sellers?

What Does “Under Contract” Mean?

“Under contract” in real estate refers to a property for which a seller has accepted a buyer’s offer. Both parties have signed a purchase agreement, but several steps remain before the sale is complete. This period is critical as it involves inspections, appraisals, and finalizing financing. It also impacts how long it will take to sell a house.

You may also hear a real estate agent call a property “under agreement.” It means the same thing.

When a property goes under contract in Massachusetts, it signals that the seller and buyer have reached an agreement on the terms of the sale, including the purchase price, closing date, and any contingencies. However, the transaction is not legally binding until all conditions are satisfied and the final paperwork is signed at closing.

Steps Involved in the “Under Contract” Phase

1. Offer and Acceptance

• The buyer submits an offer to purchase the property: This offer includes the proposed purchase price, desired closing date, and any contingencies (conditions that must be met for the sale to proceed, such as financing and inspections).
• The seller reviews and either accepts, rejects, or counters the offer: The seller can accept the offer as-is, reject it outright, or provide a counteroffer with modified terms.
• Once both parties agree, they sign a purchase agreement: This legally binding document outlines all terms and conditions of the sale, including contingencies, timelines, and obligations of both parties.

2. Earnest Money Deposit

• The buyer typically provides an earnest money deposit to show commitment: This deposit, usually a percentage of the purchase price, demonstrates the buyer’s serious intent to purchase the property. Massachusetts’s most common amount of earnest money is 5 percent of the purchase price.
• This deposit is usually held in escrow until closing: The funds are held in an escrow account managed by a neutral third party until the transaction is completed. If the deal falls through due to unmet contingencies, the earnest money is typically returned to the buyer.

3. Home Inspection and Appraisal

• The buyer arranges a home inspection to identify potential issues: A professional home inspector examines the property for structural problems, safety hazards, and necessary repairs.
• A licensed appraiser assesses the property’s value to ensure it’s worth the offer price: The lender requires an appraisal to verify that the property is worth the loan amount. If the assessment is lower than the offer price, the buyer and seller may need to renegotiate.

4. Financing

• The buyer finalizes mortgage arrangements with their lender: The buyer must provide financial documentation and complete the application process. I recommend all my clients receive a pre-approval letter before accepting an offer.
• The lender reviews the property and the buyer’s financials before approving the loan: The lender conducts a thorough evaluation to ensure the buyer can afford the loan and that the property is a sound investment.

5. Contingency Removal

• Contingencies outlined in the purchase agreement must be satisfied or waived: As mentioned, common contingencies include obtaining financing, satisfactory inspection results, and an acceptable appraisal.
• The buyer must secure a mortgage, the home inspection must not reveal significant issues, and the assessment must meet or exceed the purchase price.

6. Closing Preparation

• The closing date is set, and both parties prepare for the final transfer: The buyer and seller agree on a date to complete the transaction, typically 30 to 60 days after the offer is accepted.
• Documents are reviewed, and any remaining conditions are addressed: The buyer conducts a final walkthrough to ensure the property is in the agreed-upon condition. Both parties review and sign the necessary legal documents. See my closing checklist to ensure the process goes smoothly.

Implications for Buyers and Sellers

For Buyers:

• Secure financing early to avoid delays: Buyers should get pre-approved for a mortgage and work closely with their lender to ensure a smooth process.
• Conduct thorough inspections to uncover potential issues: Buyers should hire a reputable home inspector to identify problems affecting the property’s value or livability.
• Be prepared to negotiate if problems arise during inspections: If the inspection reveals significant issues, buyers can request repairs or negotiate a lower purchase price.

For Sellers:

• Ensure the property is in good condition to pass inspections: I recommend sellers address any known issues before listing the property to avoid delays and complications.
• Be ready to address repair requests or negotiate with the buyer: Sellers should be prepared to make repairs or offer concessions if the inspection uncovers problems.
• Keep communication lines open to avoid misunderstandings: Clear and prompt communication between all parties helps prevent misunderstandings and ensures a smooth transaction. In my experience, some of the most common problems in real estate sales are caused by a lack of communication. Avoid selling in the worst months for home sales to get the best terms and conditions.

Distinguishing Between Contingent and Pending Statuses

Understanding The Difference Between Contingent and Pending is Essential.

In Massachusetts, when an offer has been accepted, there are two stages before closing: contingent and pending.

Contingent:

• The property is under contract, but certain conditions (contingencies) must be met. Typical contingencies include the buyer securing financing, the property passing inspections, and the appraisal meeting the offer price.
• Contingencies include home inspections, financing, and appraisals. These conditions must be satisfied or waived before the sale can proceed to closing.

My helpful resource provides a detailed explanation of contingent. I have received numerous questions from buyers and sellers about how long a home remains contingent. My guide will explain this in detail.

Pending:

• All contingencies have been satisfied or waived: Once the contingencies are met, the property status changes from contingent to pending.
• The sale is in the final stages before closing: At this point, the transaction is almost complete, and the closing process begins, leading to the transfer of ownership.

See a detailed explanation of the meaning of pending in real estate.

Common Questions and Concerns

1. Can a seller accept another offer while under contract?

• Generally, no. The property is off the market while under contract. However, backup offers can be accepted: A backup offer provides an alternative if the current deal falls through but does not replace the primary agreement.

2. What happens if contingencies aren’t met?

• If contingencies aren’t met, the buyer can typically back out without losing their earnest money. For example, if the inspection reveals significant issues or financing cannot be secured, the buyer can terminate the contract.

3. How long does a property stay under contract?

• The duration varies but typically lasts 30 to 60 days, depending on the agreement and financing process. The exact timeline depends on various factors, including the transaction’s complexity and the parties’ efficiency. I recommend looking at my helpful resource on the time it takes to close on a house.

Examples and Scenarios

Scenario 1: Smooth Process

• A buyer makes an offer, and the seller accepts: The offer includes a fair purchase price and reasonable contingencies.
• The inspection revealed minor issues quickly resolved: The buyer requested minor repairs, which the seller promptly addressed.
• The financing is approved, and the sale closes within 30 days. The buyer’s mortgage application is completed without issues, and the closing proceeds smoothly.

Scenario 2: Contingency Issues

• A buyer’s offer is accepted, but the inspection uncovers major problems: Significant structural issues are found during the inspection.
• The buyer and seller negotiate repairs, delaying the process: The buyer requests extensive maintenance, leading to prolonged negotiations.
• The buyer’s financing is eventually approved, and the sale closes after 60 days. Despite delays, the buyer secures financing, and the sale is completed.

Scenario 3: Financing Falls Through

• A buyer’s offer is accepted, but their financing falls through: The buyer’s mortgage application is denied due to financial issues.
• If the buyer cannot secure a loan, the contract is terminated. The agreement is voided if the buyer cannot proceed with the purchase.
• The property returns to the market: The seller must relist the property and find a new buyer.

Paul Sian, a Realtor with United Real Estate Home Connections, provided helpful tips on preventing home sales from falling through.

A home that returns to the market for whatever reason usually has some stigma associated with it. While there may be nothing wrong with the house, and maybe the deal fell apart due to buyer financing issues, new buyers will always be a little more wary of that home that came back on the market.

Fewer buyers seeing a home means fewer chances of getting a good offer. Sellers, therefore, need to select the right offer and not necessarily go for one that is paying the most.

Instead, home sellers should be looking at the strength of the offer in terms of how much earnest money the buyer is putting down, what is the quality of the lender (if not a cash deal), who will be providing the mortgage to the buyer, how quickly do the buyers want to close and more. A qualified real estate agent can help buyers analyze offers and guide the seller on any questions about offers as they come in.

Conclusion

Understanding “under contract” is vital for navigating Massachusetts real estate transactions. This phase involves crucial steps, including inspections, appraisals, and financing arrangements. Knowing what to expect can ensure a smoother process for buyers and sellers.

Key takeaways from this article include:

• The precise meaning of “under contract.”
• The essential steps in the process.
• The implications for both parties.

Next, you may want to learn about the closing process in real estate, which finalizes the sale.