As a real estate investor, you may occasionally bump into the term “under contract.” But what does the term mean in real estate investing?
Table of Contents
- Understanding the Term “Under Contract”
- What Are Under Contract Properties?
- When Will You Hear the Term Under Contract?
- How Long Can a House Be Under Contract
- Should You Submit A Backup Offer?
- Tired of Seeing Under Contract When Browsing?
Understanding the Term “Under Contract”
When an investment property is under contract, it usually signifies that a buyer and a seller have agreed on certain mutual terms concerning the sale. First and foremost, the agreement defines the exact property price. Next comes the deadline, until which the deal must be fulfilled.
Still, having a property under contract doesn’t mean that all the essential terms are agreed upon. There are some additional gaps that need to be filled outside the contract, particularly the ones that concern property maintenance. Depending on the progress of your deal, an investment property may gain different status within the market.
However, not everything is as plain as it may seem. Even if a house is under contract, some circumstances may lead to the deal’s inevitable failure. In some cases, it may be to your advantage. In other cases, you may want to ensure your success by all possible means. To begin with, you need to look more closely at the opportunities you get from an under-contract property.
Related: The Basics of Real Estate Transactions: A Beginner’s Guide
What Are Under Contract Properties?
When a property is under contract, it doesn’t necessarily mean it has already been sold. Sure, the most important aspects of the deal have been already agreed upon, but if at least one of the conditions is not satisfied to its full extent, a deal is considered a failure. This is the exact reason why you still can see under-contract properties on online listings. You never know for sure when the deal is a success and when it falls through.
In addition, quite often, there are some external circumstances that influence the deal. Any step of investment can become a hassle for both sides of the deal.
Consider the recent pandemic and its adverse effects on plenty of real estate bargains. Contracts fall through due to a vast range of reasons, but, luckily, the percentage of successful deals still remains much higher.
Eventually, if your desired property turns out to be under contract, you can still test your luck and offer better conditions than the ones agreed upon previously. You can expect several possible outcomes to every contract in real estate. You’ve probably already encountered some of them during your investor journey, and now you can take a closer look at them.
Under Contract vs Pending
What does pending mean in real estate? Pending is a particular state of the property that is established when the contract has been already signed. Basically, when the pending status is applied to a particular property the property itself is not an active listing anymore. This status can take from a couple of days to several weeks depending on the progress of your deal.
The contract does not settle all the additional aspects of the bargain right away. There are still some legal and maintenance requirements that need to be met. While you’re dealing with them, your preferred property remains in its pending status.
Pending Properties in Real Estate
Several types of pending properties exist based on the deal’s duration. Short sale pending implies that the deal still requires approval from some higher authority. The authority may be a bank or a lender. In such a case, the investor is not in full control of the purchase, and the wait may take much longer than expected.
A short sale pending status is most likely to occur when a seller accepts an offer that does not quite satisfy their requirements. This may happen due to the seller’s inability to pay off the mortgage. An investment property thus becomes a sort of a headache for its seller. The only option is to wait for a third party to approve the sale.
Pending status is also applied to a property when an investor takes backup offers into consideration. Backup offers work as a perfect fail-safe if the previous agreement is never settled after all. Sometimes, there may be several backup offers for one property, and a seller then considers the most beneficial one. If all the backup offers fall through, the property returns to the online listings.
Last but not least, a deal can be simply postponed due to some fundamental issues with property maintenance. If the agreement is delayed for more than four months, your chosen property saves its pending status. The issues can be various, from the postponed construction to the significant oversights on the realtor’s behalf.
All in all, the pending status of a real estate property comprises all the pitfalls that may slow down your deal and negatively influence its success. While the house is still in a pending status, you are able to fix all the issues and prevent the deal from failing.
Related: What Does Pending Mean in Real Estate: A Guide for Investors
Under Contract vs Contingent
Confusion may occur if you compare such terms as under contract, pending, and contingent. Some people get confused with the last two terms more frequently.
What is contingent? Contingent in real estate is being applied to the properties that have already found their buyers, but still remain visible as active listings. The primary reason for the said status is that certain requirements are yet to be met within a particular bargain. But what if they are never met after all?
Contingencies in Real Estate
There are several types of contingencies that may emerge in real estate. Let’s say, an investor finds out that there is a lien on the property. In this case, the property’s title is not clear, and, as a result, an investor is most likely to back off.
Another hypothetical scenario is that there are some issues revealed by the home inspection of the property. In such cases, the house is said to be listed as contingent or is described as a contingent house. For that reason, an investor has the right to request additional repairs.
In addition to the contingent house meaning given above, one more type of contingency is the professional appraisal of the property. An appraisal allows a real estate investor to precisely define the amount of money that needs to be allocated for financing the deal.
Also, there is an additional financial issue that may occur. In case an investor still hasn’t obtained a loan, the deal becomes frozen and the property remains in the contingent status.
When all the contingencies are settled, this status shifts to pending. Here comes the legal part of the deal. An investment property in the pending status is no longer an active listing, but the bargain is still yet to be closed.
The outcome of a home inspection can significantly influence the status of a listed property for sale.
When Will You Hear the Term Under Contract?
There are two main instances you encounter the term under contract, when you’re a buyer looking for a property or when you’re a part of the deal. In either case, it’s going to be a little bit different for you.
When Looking for Properties
You are most likely to see the term “under contract” while browsing Mashvisor or any other influential real estate platform. In case you are looking up a particular area and see that most of the properties are under contract, it means that the local market is quite hot. If you want to check the most beneficial areas in terms of real estate, a Heatmap Analysis comes in handy.
When looking for a property using a reliable online tool, make sure that you filter your search precisely. If you are more relaxed about your research and you don’t impose some strict requirements, you can expect more fruitful results. However, there is still a chance that your ideal property turns out to be under contract.
When Participating in a Real Estate Deal
If you are a participant in a real estate deal, you will most likely run across the term “under contract” at some point in your investment process. Every serious deal includes a written agreement between two parties. Within the said agreement or contract, a seller should inform you about all the details that concern your chosen property.
On the investor’s behalf, it is important to consider all the possible risks in advance. Even if you are an experienced investor, it wouldn’t hurt to make some calculations beforehand in order to ensure the success of your deal. Using an Investment Property Calculator is the most efficient way to get ready for beneficial investing.
Bear in mind that in real estate investing both parties of a deal face certain responsibilities that need to be fulfilled in order to make a successful deal.
How Long Can a House Be Under Contract?
In some cases, you may find yourself zeroing in on a particular property that is already active under contract. But for how long can a house be under contract? The average duration of a contract in real estate is 30-45 days, although sometimes the process may extend to two months and more.
The under contract status of a property depends on several aspects. Sometimes, it takes some time to settle all the possible contingencies. In other cases, issues with financing or finding the proper construction materials may occur. Such issues are particularly relevant due to the ongoing pandemic that’s been significantly slowing down all real estate deals.
All in all, it is usually up to both parties to agree on the contract’s duration. But as an investor, bear in mind that some sellers may get tired of a prolonged deal and opt out of it after all. If you don’t want to lose your authority within the real estate market and gain sellers’ mistrust it is better to estimate all the possible risks in advance.
What Happens if a Contract Is Canceled
The fact that the property you opt for is already under the contract doesn’t mean that there is no chance to make a deal. In some cases, a contract can be canceled even after long and tedious weeks of settling all the related issues.
Sometimes, it’s due to the buyer being refused a mortgage. In other cases, it happens due to buyer’s remorse. Besides, since we’re living through a housing market crash and a growth of interest rates, this can affect the number of deals that don’t go through.
What happens if a contract is canceled? Well, in such a case, a seller can rely on a backup offer. As a buyer, you can always write a backup offer on a property that is already under contract. If the contract is canceled, a seller makes an agreement with you instead of putting a house back on the market.
However, a backup offer does not become a constraint. You can always look up other properties while waiting for the possible cancellation of a contract. There is also an opportunity to withdraw your backup offer. However, be careful with doing so, because it can considerably lower your authority within the market.
Should You Submit a Backup Offer?
Would it be beneficial for you to submit a backup offer? In case the preferred property meets all your requirements, it certainly doesn’t hurt to try. After all, it would be a pity to leave a perfect deal behind due to your own concerns. Also, more than 4% of deals fail through, so there is an actual probability for your backup offer to turn into a real bargain.
Of course, success is not guaranteed. Statistically, the percentage of successful contracts is significantly higher. You should always be prepared for the scenario in which your backup offer fails. It’s not the end of the world, as there are still a lot of beneficial deals ahead, but at least you’ve got an opportunity to try.
Related: The 5 Steps to Buying a House for Investment in 2022
Tired of Seeing Under Contract When Browsing?
Constantly bumping into “under contract” properties on online listings is certainly tiring. Sometimes, it may be difficult to make successful deals and maintain your properties while also keeping pace with all the changes in real estate. In this case, Mashvisor comes in handy.
Mashvisor is a tool that can help you find a property that will meet all your requirements in a matter of minutes. All listings within the real estate platform are constantly updated, so you can always rely on the given data. Also, the tool helps settle all the possible difficulties that can occur in the process of your deal.
If you were long looking for a helping hand that can guide you all the way through your real estate bargain, Mashvisor is certainly your best choice. You can find the needed information about a preferred property and the conditions attached all within just one platform.
All in all, if you are getting ready to agree on your first real estate contract, Mashvisor saves you a lot of time that you would otherwise spend on tedious research.
Want to give it a try? Click here to receive a 7-day free trial and a 15% discount when the trial period ends.
