When navigating the real estate market, understanding the terms “under contract” and “pending” is crucial. This article will explain the definitions, key differences, legal implications, and stages of these statuses. By the end, you’ll be well-equipped to interpret these terms, whether you’re a homeowner, real estate investor, or realtor.
Definition of “Under Contract”
The term “under contract” in real estate indicates that a buyer has made an offer on a property, and the seller has accepted it. At this stage, both parties have signed a purchase agreement, but the sale has not yet closed. Various contingencies might still need to be satisfied, such as inspections, financing, or the sale of another property.
Definition of “Pending”
A property listed as “pending” indicates that all contingencies have been met, and the deal is moving towards closing. This status shows that significant steps, such as inspections and appraisals, have been completed, and the sale is expected to close soon. Essentially, “pending” means the transaction is in its final stages, awaiting final paperwork and the transfer of funds.
Key Differences between “Under Contract” and “Pending”
While “under contract” and “pending” are often used interchangeably, they represent different stages in the real estate transaction process.
- Contingencies:
- Under Contract: The sale is contingent on certain conditions being met (e.g., inspections, financing).
- Pending: All contingencies have been resolved, and the sale is in its final stages.
- Status of the Sale:
- Under Contract: Indicates an agreement but not a final sale.
- Pending: Implies that the sale is almost complete, with only final steps remaining.
- Market Availability:
- Under Contract: The property might still be shown to other potential buyers in case the current deal falls through.
- Pending: The property is typically taken off the market as it is near closing.
Understanding these differences helps buyers, sellers, and real estate professionals manage expectations and next steps more effectively.
source: NAR
How to Determine if a Property is Under Contract
Determining if a property is under contract involves a few key steps:
- Check MLS Listings: Multiple Listing Services (MLS) often show the status of a property. Look for terms like “active under contract” or “contingent” next to the listing.
- Ask the Real Estate Agent: Direct communication with the listing agent can provide up-to-date information on the property’s status.
- Property Signage: Sometimes, signs on the property will indicate if it’s under contract. Look for additional tags or notices attached to the “For Sale” sign.
- Online Real Estate Platforms: Websites like Zillow, Realtor.com, and Redfin update property statuses frequently and can indicate if a property is under contract.
- Local Real Estate Office: Visiting a local real estate office can also help confirm the status of a property and get more details if necessary.
Knowing these methods can help you quickly determine the status of a property and decide on your next steps.
How to Determine if a Property is Pending
To find out if a property is pending, you can follow these steps:
- Check MLS Listings: MLS databases often indicate when a property is pending. The status might be labeled simply as “pending” or similar terms like “pending sale.”
- Consult Online Real Estate Platforms: Websites such as Zillow, Realtor.com, and Redfin frequently update property statuses. They often clearly label pending properties.
- Real Estate Agent Inquiry: Contacting the listing agent can provide immediate and accurate information regarding the property’s pending status.
- Property Signage: Occasionally, a “Pending” sign will be displayed on the property itself, typically alongside the main “For Sale” sign.
- Visit Local Real Estate Offices: Local real estate offices have access to the latest status updates and can confirm if a property is pending.
These methods will help you ascertain if a property is pending, allowing you to make informed decisions during your search.
Understanding the Legal Implications of “Under Contract”
When a property is under contract, several legal implications come into play:
- Binding Agreement: Both the buyer and the seller are legally bound by the terms of the purchase agreement. This means that both parties must adhere to the agreed-upon conditions and timelines.
- Contingencies: The contract may include various contingencies that need to be fulfilled before the sale can proceed. Common contingencies include home inspections, financing approval, and the sale of the buyer’s current home. If these conditions are not met, the contract can be voided without penalty.
- Earnest Money Deposit: Typically, the buyer deposits earnest money to demonstrate their serious intent to purchase. If the buyer backs out for reasons not covered by contingencies, they may forfeit this deposit.
- Due Diligence: This period allows the buyer to conduct inspections and appraisals. If significant issues arise, the buyer can negotiate repairs, price reductions, or potentially withdraw from the contract without losing their deposit.
- Seller Obligations: The seller must maintain the property’s condition and comply with any agreed-upon repairs or changes before closing.
Understanding these legal implications ensures that both buyers and sellers are aware of their rights and responsibilities during the “under contract” phase.
Pending Home Sales in the United States (change in %)
source: Trading Econmics
Understanding the Legal Implications of “Pending”
When a property reaches the pending status, it implies that several legal aspects are in place:
- Completion of Contingencies: All contingencies outlined in the contract have been satisfied. This includes passing inspections, securing financing, and resolving any other specified conditions.
- Binding Commitment: Both parties are legally committed to completing the transaction. Backing out at this stage without a valid legal reason can result in penalties or legal action.
- Final Preparations for Closing: The final paperwork is being prepared, and both parties are getting ready for the closing date. This includes arranging for the transfer of funds, finalizing mortgage details, and preparing the deed.
- Escrow Process: The escrow account holds the earnest money and any other required funds until the sale is complete. The escrow company or agent manages this process to ensure all conditions are met before closing.
- Seller Restrictions: The seller typically cannot entertain other offers or market the property during the pending phase, as the sale is expected to close.
Understanding these legal implications provides clarity on the binding nature and expectations of the pending status, ensuring both parties are prepared for the final steps of the real estate transaction.
What Happens During the “Under Contract” Stage
The “under contract” stage involves several critical steps in the home buying and selling process:
- Home Inspection: Once the contract is signed, the buyer typically arranges a home inspection to identify any issues or necessary repairs. Based on the inspection results, negotiations may occur for repairs or credits.
- Appraisal: The buyer’s lender will order an appraisal to determine the property’s market value. If the appraisal is lower than the agreed purchase price, further negotiations might be needed.
- Securing Financing: The buyer finalizes their mortgage application. This step includes underwriting, where the lender reviews the buyer’s financial information to approve the loan.
- Contingency Resolution: Any contingencies specified in the contract, such as the sale of the buyer’s current home or obtaining certain permits, need to be resolved.
- Title Search: A title company conducts a title search to ensure there are no legal claims or liens against the property. This ensures the property can be legally transferred to the buyer.
- Negotiations and Amendments: If any issues arise, both parties may negotiate amendments to the contract. This can include price adjustments, repair agreements, or timeline changes.
- Preparing for Closing: Both parties prepare the necessary documents and arrange for the transfer of funds. This includes the buyer securing homeowner’s insurance and the seller preparing the deed.
- Final Walkthrough: The buyer conducts a final walkthrough of the property to ensure it is in the agreed-upon condition before closing.
These steps ensure that all conditions of the sale are met, and both parties are ready for the final closing process.
What Happens During the “Pending” Stage
The “pending” stage signifies that the transaction is nearing completion. Here’s what typically happens:
- Final Document Review: Both parties review all the documents to ensure accuracy and completeness. This includes the purchase agreement, title documents, and loan papers.
- Title Transfer Preparation: The title company prepares the necessary documents to transfer the title from the seller to the buyer. This includes ensuring there are no outstanding liens or legal issues.
- Escrow Finalization: The escrow agent ensures that all conditions of the escrow are met. This includes the receipt of funds from the buyer and the final payoff amount from the seller’s lender.
- Settlement Statement Review: Both buyer and seller review the settlement statement, which details all the financial aspects of the transaction, including closing costs, prorated taxes, and any other fees.
- Signing of Documents: Both parties sign the closing documents. This typically happens at a closing meeting where the buyer, seller, real estate agents, and sometimes attorneys are present.
- Funding the Loan: The buyer’s lender funds the loan, transferring the mortgage amount to the seller’s account. This usually happens on the day of closing or the day before.
- Key Handover: Once all documents are signed and funds are transferred, the buyer receives the keys to the property, officially making them the new owner.
- Recording the Sale: The title company records the sale with the local government, making the transfer of ownership official.
This stage is the final step before the property changes hands, ensuring all legal and financial aspects are in order.
Common Misconceptions about “Under Contract” and “Pending”
There are several misconceptions about the terms “under contract” and “pending” in real estate. Understanding these can help clarify the buying and selling process:
- Misconception: Under Contract Means the Sale is Guaranteed:
- Reality: Being under contract does not guarantee the sale will go through. Contingencies still need to be met, and either party can back out if conditions are not satisfied.
- Misconception: Pending Properties Are Still Open to Offers:
- Reality: Once a property is pending, it typically means all contingencies have been met, and the sale is close to closing. Sellers usually do not entertain new offers during this stage.
- Misconception: Under Contract and Pending Are the Same:
- Reality: While both terms indicate that a sale process has started, “under contract” means the deal is contingent on certain conditions, whereas “pending” means those conditions have been satisfied and the sale is nearing completion.
- Misconception: You Can Still Back Out Easily in the Pending Stage:
- Reality: Backing out during the pending stage is difficult without facing legal or financial repercussions, as all contingencies have been met and both parties are legally bound to complete the transaction.
- Misconception: Pending Properties Take Longer to Close:
- Reality: Pending properties are usually close to closing, often within a few days to a couple of weeks, as opposed to properties that are merely under contract, which may take longer due to unresolved contingencies.
Understanding these misconceptions helps clarify the process for buyers, sellers, and real estate professionals, ensuring smoother transactions.
FAQs
Is Pending Sale Better Than Under Contract?
Pending sale generally indicates a more advanced stage in the transaction process compared to under contract. Pending means that all contingencies have been resolved, and the deal is close to finalization, making it a more stable and certain status.
Can a Seller Accept Another Offer While Under Contract?
No, once a property is under contract, the seller is legally bound to that agreement and cannot accept another offer unless the current contract falls through due to unmet contingencies or other reasons.
Does Under Contract Mean Off the Market?
Not necessarily. While a property is under contract, it is not officially sold and may still be shown to other potential buyers in some cases. However, any new offers would be considered backup offers in case the current contract does not close.
Is Pending the Same as In Contract?
No, pending and in contract (or under contract) refer to different stages. “In contract” or “under contract” means an agreement has been reached with contingencies still to be met, while “pending” means those contingencies have been satisfied and the sale is close to closing.
Conclusion
Understanding the terms “under contract” and “pending” is essential for anyone involved in real estate transactions. These terms indicate different stages of the selling process, each with specific legal and procedural implications. Knowing the distinctions helps buyers and sellers navigate the market more effectively and make informed decisions.
By comprehending these stages, homeowners, real estate investors, and realtors can better manage expectations and streamline their real estate transactions, ensuring a smoother and more efficient process.
