Are you delving into the exciting world of home buying? With so much to learn and consider, possessing a thorough understanding of the entire process is key to making informed decisions. One term you’ll frequently encounter is “under contract.” It plays a crucial role in the home buying or selling process, but what does it really mean? Worry not, as we’ve got you covered with this comprehensive guide! We’ll explore the meaning of “under contract,” the types of contracts you’ll deal with, the benefits and dangers of entering into a contract, and the essential steps involved in the contract process. Arm yourself with this knowledge and confidently embark on your journey towards homeownership.
What does ‘under contract’ mean?
When you start your journey of finding the perfect home, you’ll come across the term “under contract.” It’s a vital part of the home buying process, and understanding its meaning will prove beneficial to you as a buyer or seller. In simple terms, a property is considered “under contract” when the buyer and the seller have both agreed on the price and the terms of the sale, and have signed a written contract.
It means that both parties are legally bound to fulfill their respective obligations under the agreed-upon terms. It’s important to note that being “under contract” doesn’t mean that the deal is done and dusted; rather, it’s an intermediate stage before closing the deal, during which contingencies might still come into play.
Types of contracts
There are two main types of contracts involved in the home buying process, namely:
A buyer’s contract, also known as a purchase agreement or property purchase contract, outlines the terms and conditions agreed upon by the buyer and the seller. It includes crucial information such as the purchase price, the amount of the deposit, the closing timeline, and any contingencies that may apply.
Often referred to as a listing agreement or seller representation agreement, a seller’s contract is an agreement between the seller and their chosen real estate agent. This document outlines the terms on which the agent will represent the seller and their interests during the home sale process.
Benefits of being under contract
Being under contract offers several advantages to both buyers and sellers. For buyers, being under contract offers a level of certainty and protection, ensuring that their dream property will not be snatched away by another buyer. Additionally, it demonstrates their serious intent to proceed with the purchase, which can make the negotiation process smoother.
On the other hand, for sellers, having a property under contract helps lock in a committed buyer and provides assurance that the sale is more likely to go through, making it easier to make plans for their next move.
Dangers of entering into a contract
While contracts provide a level of security and structure to the home buying process, it’s crucial to exercise caution when entering into one. Make sure to read and understand all the terms and conditions, and know exactly what you’re committing to.
Some of the potential drawbacks of entering into a contract without proper understanding include:
1. Financial loss due to contract breaches.
2. Legal disputes arising from disagreements over terms and conditions.
3. Complications and delays in the home buying process.
It’s essential to consult a real estate agent or an attorney to help you navigate the complexities of contracts and ensure your best interests are protected.
Steps involved in a contract
The process of going under contract involves several key steps:
1. The buyer makes a formal offer: This can be done through their real estate agent or attorney, and it includes the proposed purchase price and any contingencies.
2. The seller reviews and responds to the offer: The seller can either accept, reject, or counter the offer, depending on their preferences and the current market conditions.
3. Negotiations and counteroffers: Both parties can negotiate on the price and terms until they reach an agreement that satisfies both parties.
4. Due diligence period: Once both parties have agreed upon the terms, they move into the due diligence period. This is the time when the buyer will typically perform inspections, secure financing, and conduct an appraisal to ensure the property is worth the agreed-upon price.
5. Addressing contingencies: If any issues arise during the due diligence period, the buyer and seller will need to address them to move forward. Common contingencies include inspection contingency, financing contingency, and appraisal contingency.
6. Closing the deal: Once all contingencies have been satisfied, both parties will move forward to close the sale. Closing typically involves signing the final contract, transferring the title, and exchanging funds.
Being “under contract” is a crucial step in the home buying process. Understanding its meaning and steps involved will ensure a smooth and successful experience for both buyers and sellers.