A house under contract in real estate may be sold to someone else, but only if the original agreement falls through. The primary (or first accepted) commitment must break down for the seller to accept a backup offer. However, sellers can receive other submissions and hold them in case something goes wrong.
- Under contract means there is an executed (both the buyer and seller signed) on the property
- You can still make an offer on a house under contract
- Houses under contract do fall through, but not often
Because real estate transactions are complicated, time consuming and emotional they can break down. If this happens then the seller may accept another offer and sell the home to someone else.
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What Happens When a House goes Under Contract in Real Estate?
In some states, like New Jersey, there is an initial attorney review period. During this time lawyers examine the documents and makes changes based on their clients’ situations. While this is going on, the contract is not binding. Therefore, either side may back out without penalty.
When a house goes under contract, the seller may not sell the house to someone else, unless deal breaks down. When a house enters this status the buyer and seller work to meet all contingencies, so they close as quickly as possible. These major events must happen before the home can close:
- The buyer pays for the home inspection, and it usually turns up issues that require negotiation
- Banks require appraisals to make sure the home’s value is consistent with its value. If it is not, then you will need to negotiate again
- A title agency will conduct a title search to make sure that the seller has clear title to the property
- The mortgage company must approve the loan and draw up the closing documents
- Sellers need to cancel their utilities and move their personal effects out of the house
As you can see, there is a lot to do once you sign the agreement. Whether you are the buyer or seller you need to work with your agent and other professionals you hired to make sure the process goes smoothly until the closing.
Under Contract Continue to Show in Real Estate
When a house goes under contract, but the owner continues to show the property has a legally binding deal. The seller, however, still allows other potential buyers to see the house hoping for a backup offer. In some systems this may be called active under contract. Often, the seller is not comfortable with agreement. The contract may contain a contingency, usually a sale and settle clause. This due diligence allows the buyer to close on a house they sell before finalizing the deal on the home they buy.
- In California, it means the house has a contract but has not gone to pending status yet
- In other areas, it indicates the seller has a contract that they think may fall through
Ruby Home says the most important thing to remember is when an agent lists the house as under contract you cannot buy it unless the primary contract falls through.
Under Contract Pending
When a house goes under contract pending it usually means that the parties involved have met all contingencies and the property will close soon, but that is not always the case.
- In some areas pending means the same as under contract.
- Pending, in other areas, means that all contingencies are met or removed
In either case the seller agreed to sell the house. If you submit an offer, it will be a backup.
If a House is Under Contract in Real Estate, can I still Make an Offer?
You can make an offer on a house that is under contract, and many sellers encourage this because if the primary deal does not work out, they can sell the house to someone else. Real estate deals have a complicated progress that often takes a long time.
Contingencies within the contract are the main reason that real estate agreements fall apart. Bankrate gives us a list of common provisions:
- Homeowner’s insurance
Another clause that often causes problems is a home sale contingency. In this case the buyer needs to sell a property to secure funds to buy the home he wants. Any of these may cause a deal to collapse. If you really love the property, then it may be worth it to take the time to submit a backup.
How Long can a House be Under Contract?
If you want to make an offer on a house under contract you may wonder how long that can take. Keep in mind that a property usually stays in this status 30 – 60 days if the buyer needs a mortgage. The standard closing period is 60 days, but this expands or contracts due to contingency issues.
- 30 days is as short as reasonable if the buyer needs a mortgage.
- An issue with inspection can take longer.
- If the house is in foreclosure and the bank must approve the contract it can take longer than 60 days.
As you can see many things can change the timeline for a closing. Most deals take 60 days from signing the contract to closing. However, some due diligence issues can take a long time to resolve. Finally, if the buyer does not need a loan, then the process may take as little as ten days.
Inspections for a House Under Contract in Real Estate
If you make a backup offer on a house that is under contract, remember that inspections are the most common reason for real estate deals to unravel. They may find problems that require renegotiation or remediation that may make the house stay under contract longer. It may also kill the deal.
If an inspector finds a major problem with the structure, the buyer may renegotiate or back out. Be wary of houses that go back on the market because of inspection issues. It may be the case that the two parties could not agree on remediation, but it may also indicate a serious structural problem that you do not want.
Can a House Under Contract Fall Through?
A house that is under contract can fall through, and then the seller may sell the house to someone else. Anything can happen before the closing.
- due diligence issues, especially, inspection often kill deals
- Sometimes buyers get cold feet, though not often, especially if they lose their deposit
- Mortgage issues, such as the buyer’s financial situation changes, can nullify the agreement
As you can see many things may go wrong. However, while all of these are possible, they are rare. More than 90% of homes that are under contract go on to close.
Can a seller Accept Another Offer?
A house that is under contract can only be sold to someone else if the first agreement falls through. The seller may, however, accept other offers and hold them in case something happens with the primary agreement.
- A signed agreement is a binding legal document
- Only violations of the contingencies will nullify the deal
- The seller may only sell the house to someone else if the first agreement is nullified
If you are a buyer, and you are worried about the seller pulling the rug out from under you, you should not be. You have legal recourse if they do. If you are the seller, remember that the buyer puts earnest money down on the house, and you have access to that if they walk away without cause.
How Often do Houses Under Contract Fall Through in Real Estate?
Housess under contract do not fall through often, but it does happen sometimes. Trulia did the last comprehensive analysis on the percentage of real estate transactions that fail back in January of 2017. They found that 3.9% fail, up from 2.1% in 2015. At the time, they expected the trend to increase, and there is considerable evidence that it has.
Historically, there are three key issues that cause real estate deals to fall apart. They are:
- First time home buyers are not prepared to navigate the process
- Home inspection issues
- Financial changes for the buyer
This last one has become more important in the last few years. Banks tightened their underwriting procedures after the last banking collapse. Further, pandemic uncertainty caused financial upheaval for many potential buyers. Anecdotal evidence suggests that the percentage today may be as high as 9%.
Final Thoughts on Can a House Under Contract be Sold to Someone Else
A seller may sell a house under contract only if the original agreement is nullified. This does not happen often, but it is becoming more common. Therefore, both potential buyers and sellers have reasons for entertaining backup offers.
Sellers often accept backup offers because it gives them a better negotiating position with their buyer. Also, if the deal does fail then they may replace one agreement with another and not put the property back on the market.
Buyers have an incentive to put in an offer on such a property because you never know what will happen. If the two parties cannot agree, then the next buyer’s submission will usually be first in line.