Last updated on June 10th, 2024 at 06:32 am
Buying or selling a house is a complex process that involves numerous legal and financial considerations.
One important aspect of this process is the contract, which outlines the terms and conditions of the sale.
When a house is [under contract], it means that a buyer has made an offer that the seller has accepted, and both parties are legally bound to fulfill their obligations.
Understanding the timeline of a house under contract should be understood for both sellers and buyers, as it can significantly impact the overall transaction.
What does it mean when a house is under contract
When a house is under contract, it signifies that the buyer and seller have reached an agreement on the terms of the sale.
This agreement is documented in a legally binding contract, which outlines the purchase price, contingencies, inspection periods, and other relevant details.
During the time a house is under contract, the seller cannot accept any other offers from potential buyers.
The buyer is committed to purchasing the property unless certain conditions are not met.
The timeline of a house under contract
The timeline of a house under contract can vary depending on several factors. Typically, it starts with the acceptance of an offer and concludes with the closing of the sale.
This timeline can be anywhere from a few weeks to a few months, depending on various variables, such as the complexity of the transaction, the responsiveness of the parties involved, and the local real estate market conditions.
The first stage of the timeline is the negotiation and acceptance of the offer.
Once the offer is accepted, the buyer usually has a specified period to conduct inspections, obtain financing, and resolve any outstanding contingencies.
This period is commonly known as the due diligence or inspection period. After the due diligence period, the buyer may request repairs or negotiate changes to the contract based on the inspection findings.
Factors that can affect the length of a house contract
Several factors can influence the length of time a house remains under contract. The offer will be contingent on certain things that need to be met.
What are contingencies in real estate
Contingencies in real estate refer to conditions that must be met before the sale of a property can be completed.
These conditions are typically outlined in the purchase agreement between the buyer and seller, and they can be either mandatory or optional.
Some common contingencies in real estate include:
Financing contingency: This contingency specifies that the sale of the property is contingent upon the buyer obtaining financing from a lender.
Inspection contingency: This contingency specifies that the sale of the property is contingent upon the results of a home inspection. If the inspection reveals any issues, the buyer may request repairs or negotiate a lower price.
Appraisal contingency: This contingency specifies that the sale of the property is contingent upon the property being appraised at or above the purchase price.
Title contingency: This contingency specifies that the sale of the property is contingent upon the seller having clear title to the property.
Home sale contingency: This contingency specifies that the sale of the property is contingent upon the buyer selling their current home.
Contingencies protect both the buyer and seller by ensuring that certain conditions are met before the sale is completed.
Contingencies are conditions that must be satisfied for the sale to proceed.
If any of these contingencies are not met within the specified timeframe, the contract may be terminated.
Another factor that can affect the length of a house contract is the efficiency of communication between the buyer and seller.
Prompt responses to inquiries, timely submission of required documents, and efficient coordination of inspections and appraisals can significantly impact the timeline.
Delays in any of these areas can prolong the contract period and potentially lead to complications.
Additionally, the current state of the real estate market can influence the length of time a house remains under contract.
In a seller’s market, where demand outweighs supply, houses tend to sell more quickly, resulting in shorter contract timelines.
On the other hand, in a buyer’s market, where supply exceeds demand, houses may remain under contract for an extended period as buyers have more options and negotiating power.
How long can a house remain under contract
The duration a house can remain under contract varies based on the factors mentioned above.
- The average length of time a house is under contract is typically between 30 and 45 days.
- The average time for a reverse mortgage is usually between 45 and 90 days.
According to Rocket Homes, most residential home sales take 4-8 weeks from start to finish, although some transactions take longer depending on unique circumstances surrounding the deal. However, canceled contracts do happen.
Additionally, Redfin notes that when a property is under contract, the buyer has a specified period of time to fulfill their obligations, and during this time, properties continue to be marketed but maintain the active under contract status until the sale is finalized, or the transaction is canceled.
- The average time for an FHA loan is usually between 60 and 90 days.
However, this timeframe can be shorter or longer depending on the specific circumstances of the sale.
For example, if the buyer requires financing, the contract period may be extended to allow time for loan approval and processing.
It is important to note that the length of the contract does not solely depend on the buyer’s or seller’s preferences.
Both parties must adhere to the agreed-upon timeline outlined in the contract.
Failure to fulfill obligations within the specified timeframe can lead to contract termination or legal consequences.
The importance of active under contract status
During the contract timeline, it is important for the listing to remain in an active “under contract” status.
This status indicates to other potential buyers and real estate agents that an offer has been accepted, and the property is no longer available for sale.
Maintaining an active under contract status helps prevent confusion and ensures that the property is not erroneously marketed or shown to other buyers.
For sellers, an active under contract status is an opportunity to continue marketing the property as a backup plan in case the contract falls through.
It allows them to have a backup option in case the buyer is unable to fulfill their obligations or breaches the contract.
Additionally, maintaining an active under contract status can help generate interest from potential buyers who may be interested in making a backup offer.
What are the potential risks of a house being under contract
There are several potential risks associated with a house being under contract:
- The sale may fall through: Just because a house is under contract doesn’t mean the sale will close. There are several reasons why a sale may fall through, including issues with financing, inspection, or title.
- Limited market exposure: When a house is under contract other buyers won’t be interested in the property. This means that other potential buyers may not be aware that the property is still available and can make backup offers
- Delayed closing: Sometimes, the closing process can take longer than expected, which can be frustrating for both the buyer and the seller.
- Limited negotiation power: Once a house is under contract, the seller may have limited negotiation power. They may not be able to accept other offers or make changes to the terms of the contract.
Tips for sellers to navigate the contract timeline
As a seller, navigating the contract timeline can be both exciting and nerve-wracking. To ensure a smooth transaction, here are a few tips to consider:
- Communication is key: Stay in constant communication with your real estate agent and the buyer’s agent. Promptly respond to any inquiries or requests for information to avoid delays or misunderstandings.
- Prepare for inspections: Address any known issues with the property before listing it. Conduct necessary repairs and maintenance to minimize the likelihood of significant inspection findings that may delay or complicate the contract.
- Be prepared for negotiations: Buyers may request repairs or adjustments to the contract based on the inspection results. Be open to reasonable negotiations and work towards finding a mutually beneficial solution.
Tips for buyers to navigate the contract timeline
For buyers, the contract timeline can be a period of anticipation and preparation. To navigate this phase successfully, here are some helpful tips:
- Secure financing early: Begin the mortgage pre-approval process before making an offer. Having pre-approved financing in place allows for a smoother transaction and can help speed up the contract timeline.
- Conduct thorough inspections: Take advantage of the due diligence period to thoroughly inspect the property. Hire qualified professionals to assess the condition of the house and identify any potential issues that may impact your decision to proceed with the purchase.
- Stay organized: Keep track of important deadlines and required documents. Ensure that all necessary paperwork is submitted promptly to avoid delays or complications.
Common challenges during the contract timeline
The contract timeline can present various challenges for both buyers and sellers. Some common challenges include:
- Financing issues: Buyers may encounter difficulties in obtaining financing, which can delay the contract timeline. Address any potential financing hurdles early in the process to prevent unnecessary delays.
- Inspection complications: Inspection findings can lead to negotiations and potential delays. It is crucial for both parties to approach these discussions with a willingness to compromise and find mutually agreeable solutions.
- Appraisal concerns: The appraisal value of the house may not align with the agreed-upon purchase price, which can create complications. Buyers and sellers must be prepared to address any appraisal discrepancies and determine the best course of action. If the appraisal of the home comes in under the contract price, the buyer usually can get their earnest money back as along as they didn’t include an appraisal waiver in the contract.
What percentage of home sales fall through
According to a Redfin report from July 2021, approximately 4.9% of home sales fell through in June 2021.
This is down from the peak of 5.7% in April 2020 but still higher than pre-pandemic levels.
What are the most common reasons why a house falls out of contract
- Financing Issues: A buyer may not secure a mortgage loan despite a pre-approval due to changes in their financial situation, such as job loss, taking on additional debt, or changes in credit score.
- Low Appraisal: If the house appraises for less than the agreed selling price and if the seller doesn’t lower the price or the buyer can’t raise more money, the contract can fall through.
- Home Inspection Problems: If defects or potential issues are discovered during a home inspection, such as structural damage or needed major repairs, the buyer may choose to back out if they aren’t resolved.
- Contingency Clauses: Most real estate contracts include certain contingencies, such as the sale of the buyer’s previous house, that if not met, can lead to the cancellation of the contract.
Conclusion and final thoughts
Understanding the timeline of a house under contract is paramount for both sellers and buyers. It helps manage expectations, plan ahead, and navigate potential challenges.
Factors such as contingencies, communication efficiency, and the local real estate market conditions can significantly impact the duration of the contract.
If you have a property that fell though during the option period, house buyers can make you a cash offer on a home with no inspection period.
By following the tips provided, sellers and buyers can make the contract timeline a smoother and more successful experience.
Remember, maintaining an active under contract status throughout the process to prevent confusion and generate potential backup offers.