Whether you’re driving around the neighborhood or just looking at listings on Zillow, you’ll likely come across a home that seems perfect in every way. But as soon as you try to learn more about it, you might find out that its sale is already pending or under contract. What do these mean?
In this article, we’ll cover how real estate transactions work, the differences between pending and under-contract sales, and what you can do to stay ahead.
How Do Real Estate Transactions Work?
The home-buying process isn’t quite as simple as agreeing on a price, shaking hands, and calling in the moving truck. In most cases, the transaction is actually between three parties – not two. The seller, the buyer, and the bank financing the loan all need to be satisfied with the deal before it moves forward.
That’s why before we get into the terminology, it helps to understand the steps of a standard real estate transaction.
- The buyer decides on a home.
- The buyer makes a formal, written offer.
- The seller accepts the offer after any necessary negotiations.
- Both the buyer and seller sign a contract, which is typically contingent on additional factors like financing and inspection results.
- The buyer’s earnest money is deposited into an escrow account or equivalent.
- The buyer goes to a lender to line up a mortgage.
- The home is inspected (for the buyer’s sake) and appraised (for the lender’s sake).
- The deal is closed.
Keep in mind that this is a fairly simple version of events. There will also be things like title searches and settlement agreements to go over, and securing financing is a fairly involved process all on its own.
Under Contract vs. Pending: The Full Breakdown
The trickiest part about understanding the difference between a sale that’s pending and one under contract is that the terminology tends to vary from region to region. In any case, it’s safe to assume the following:
Under contract: the buyer has made a formal offer and the seller has accepted (Step Four in the above list).
Sale pending: the home is under contract and all contingencies have been removed (that is, the requirements have been met). That puts this status at about Step Seven in the list above.
Basically, a sale-pending property is much closer to being sold than an under-contract property.
In some markets, agents will use these terms interchangeably with either meaning. This is because their MLS (multiple listing service) doesn’t have a tag for both statuses.
On the other hand, they may use different terms altogether. Depending on where you’re searching, you may see “contingent” or “option” to mean similar things.
When in doubt, ask your real estate agent or contact your Total Mortgage loan expert. Either will be happy to set you straight.
Can I make an offer on a home that’s pending sale or under contract?
Let’s break it down.
Sale pending: unlikely, but not impossible. At this point, many seller’s agents don’t see the point in continuing to accept additional offers, but some might. It is still technically possible for the sale to fall apart, which would put you in an ideal position to submit an offer.
Under contract: definitely possible. Unless there’s a clause preventing it in the contract, the seller’s agent will continue to accept backup offers and even show the home to prospective buyers. This is because at this stage, the deal can easily fall through.
Either way, it’s worth a try. Until all the closing paperwork is signed and dated, the house could still be yours.
How often do real estate deals fall through?
This, again, is one of those things that will vary by region and depend on the market. Since most MLSs don’t track deals that fall through, there also isn’t much in the way of data available.
However, two real estate agents in this forum thread weighed in based on their personal experiences and placed the rates at 10-20 percent and 15-25 percent – not bad odds at all.
There are tons of reasons that could cause a deal to fall apart. Some of the most common include:
A surprise lien on the property. These will generally be found during the title search and can completely scuttle a sale.
A low appraisal. If the home turns out to be worth less than the loan amount, the lender will almost always want out of the deal. They’ll leave the buyer to either pony up the difference in cash or walk away.
Problems discovered during the inspection. Issues with a home inspection will often lead to renegotiation. Still, it’s always possible for the buyers to back out if the issues are large enough.
The buyer’s DTI ratio. The more debt a buyer has, the less debt they can take on. If the sale of their current home fell through, for instance, buying a new home often pushes their debt-to-income ratio into a range that lenders aren’t comfortable with.
However, if the status of the home is truly sale pending – as in, all contingencies have been met and the deal is clear to close – the odds of it falling apart are much slimmer. Though closing issues are still fairly common, at this stage both the buyer and seller are generally very motivated to get the sale over with already – and if they can make it work, they probably will.
The bottom line
To sum things up:
- Yes, there is a difference between sale pending and under contract.
- No, it may not be a huge difference, especially depending on your own regional real estate quirks.
- Yes, there’s still a chance you’ll be able to snap up a house that’s already been claimed, so to speak.
In the end, you can’t lose anything by making an offer on a home you love, so give it a shot.
If you have any questions about the buying process, Total Mortgage has loan experts across the country ready to help.
Source: totalmortgage.com