You might have seen properties listed as “under contract” on many real estate websites. But what does under contract mean? Does it mean sold? Or is the house still open for sale? Whether you are a first-time home seller or an experienced investor, it is important to understand the commonly-used terms in the real estate industry.
What does under contract mean?
After an offer is being accepted by the seller, there is a contract which both the buyer and seller need to sign. Once signed, there is a legally binding agreement between the buyer and seller. Each party then receives a copy of the other’s signed contract either electronically or as a hardcopy. This is called the exchange of contracts and the property is now described as being “under contract”.
When a house is “under contract”, It is important to understand that the sale of the house is not yet completed. The contract could fall through anytime during what is called the “cooling-off period” or if the conditions stated in the contract have not been met. Let’s understand these two scenarios below.
The cooling-off period gives the buyers three to five business days to reconsider their purchase and conduct further inspections of the property. This gives buyers a chance to withdraw from the contract of sale by paying a penalty amount if they change their mind. The amount of penalty deducted and the rules regarding the cooling-off period in Australia vary between states and territories. It should be noted that the cooling-off period doesn’t apply to properties sold at auctions.
In a private sale, the buyer can request the seller to make the sale subject to a few conditions. This can be done by adding certain ‘subject to’ clauses in the contract. The conditions could be getting approval for a loan (‘subject to finance’), the sale of an existing property, the successful completion of a building pest inspection, etc. When all these conditions are met, the sale goes unconditional and the property is considered ‘sold’. But if these conditions are not met, the buyer can still back out of the contract.
So, why are “under contract” properties still listed on real estate websites?
You will see properties under contract still being advertised for sale on real estate websites. This is because the contract could fall through anytime under various situations as explained above. If that happens, the property could still be back in the market for sale.
Generally, the agents will continue to accept inquiries on the property when it is under contract. They may also hold inspections of the property as it’s not “officially sold”. Listing a property when it is under contract makes it safer for the agent and the seller by having additional interested buyers in case the first contract falls through.
While doing any type of real estate transaction, it is crucial to understand the important real estate terms used in various situations. It’s always a good idea to consult a knowledgable real estate agent to get yourself familiarised with the common real estate terms. This will help you avoid any confusion later. Use our online comparison platform to find the top-performing real estate agents in your area and compare them based on reviews from homeowners, sales history, commission rates, fees, marketing strategy and much more.