What "Under Contract" Means

Have you ever found a great house online and contacted your Realtor to hear them say "that one is under contract."  What does that mean? Simply put it means the sellers have already accepted an offer from another buyer. There are varying degrees of pending sale and some allow a glimmer of hope that you can still buy the home.  

Pending Sign

Once a home goes under contract it's entirely up to the buyer to cancel the contract. The only way a seller can initiate the cancellation of a contract is if the buyer misses a deadline. This is important to know because many buyers say "I'll pay them more." No matter how much better your offer is the seller is powerless to accept it unless their buyer cancels the contract. 

There are three different "under contract" statuses in the Kansas City market. These are Contingent, Show for Backup and Pending. Each has a different meaning according to our MLS (Multiple Listing Service.)  I'll break down what they mean in simple terms below. 

Contingent. This is strictly used when a home is under contract with a buyer who has a home to sell. Their home must currently be on the market and NOT under contract. Once the home the buyer is selling goes under contract, the listing marked contingent should move to Show For Backup. Contingent status is the easiest to get a backup offer accepted on. This is the only under contract status that has a "kick-out" clause for the seller. 

When the seller accepts an offer contingent upon the sale of another property they maintain kick-out rights to the first buyer. Meaning they can accept a backup offer and give notice to the first buyer of their intent to "kick-out" the current contract. The buyer currently under contract will have a set period of time (determined by the contract) to waive their contingency. Either by getting the home their selling under contract, or providing written proof that they have the means to purchase without selling their home. Such as having cash available to buy the next home or that they qualify for a mortgage without selling their current home.

While all of that sounds extremely convoluted, it's actually pretty simple in practice and since the seller has the right to kick out the first offer they accepted it's the easiest way to get your offer accepted.  This is a rare status to see however, especially in our market today where homes are selling by and large in fewer than 10 days. 

Show for Backup. This status means that the seller has accepted an offer and is (generally) waiting for the inspection contingency to pass.  A buyer has the right to conduct inspections and renegotiate the terms of the contract if unacceptable conditions are found. 

Therefore you can submit a backup offer and hope that the buyer finds fault in the inspection and chooses to cancel. It's important to remember that the seller has no power to cancel the contract. If a buyer submits a ludicrous list of demands the seller will have to wait until the end of the negotiation period and submit their cancellation notice. 

The buyer maintains the right to accept the property as-is at any point prior to the expiration of the negotiation period. When buyers are getting very little cooperation from sellers in the renegotiation period, it's commonly because the seller has a backup offer their sitting on hoping the current contract will die.

Generally speaking backup offers are used to encourage smooth sailing with the current buyer. Either intentionally or by circumstance. It's rare that a backup offer has the opportunity to become primary and because of this I typically don't recommend viewing a property already under contract.

Pending. Once a buyer reaching pending status the only thing that will kill the deal is if their financing falls through for whatever reason. Showings aren't allowed on homes in pending status and it's pretty much a done deal. A listing will hit this status when all parties are sitting back waiting for closing. All in all, pending is as good as sold. 

Even being the equivalent of sold, if a buyer fails to close on time or misses another deadline the seller can cancel the contract. So there is a tiny sliver of hope here. Most sellers will opt to grant a several day extension to the current buyers rather than risk starting over with new buyers. I have seen it happen though. 

I hope this helps to shine a bit of light on that ominous and vague phrase "under contract." Just know that if the home is under contract in any form the odds are very low that'll you have an opportunity to purchase it.