Whether you're eyeing your dream home or preparing to sell, knowing the difference between under contract vs pending can help you make better real-estate buying decisions.
Buyers, sellers, and realtors often confuse the terms “under contract” and “pending.” This misunderstanding can lead to missed opportunities and terminated contracts. For example, the buyer assumes this means the property is no longer available, so they continue their search elsewhere. In reality, "under contract" can sometimes include contingencies that might not be met, and the deal could still fall through. In this case, the buyer missed the opportunity to place a backup offer. According to the Realtors Confidence Index Survey, 7% of signed contracts for three months ending January 2022 were terminated. The primary reasons for contract termination were issues related to inspection, financing, and appraisal.
While there is a slight difference between the two, as the saying goes, the devil is in the details. Read on to learn about the difference, which could make all the difference between living in your dream house or helping a client land their dream house.
Stages in a Real Estate Transaction
Here is what a typical real estate transaction looks like.
As you can see, “under contract” and “pending” are distinct stages in the process.
What is Under Contract?
Under contract, or contingent, means the buyer has accepted an offer but the deal is subject to contingencies laid out in the purchase agreement.
The typical duration for the under contract stage is 30 to 60 days.
During the under contract stage, the property is available on the market and the buyer can accept backup offers. This is because, in the real world, problems can arise, and buyers and realtors want options in case a deal they are working on falls through.
If you were intent on buying a property that is under contract, or have an interested client, you can still make a bid to entice the seller.
What is Sale Pending?
Sale pending, or pending, refers to the stage in the real estate transaction process that succeeds the under-contact stage.
Once the contingencies from the under contract stage are satisfied or waived, the property status moves to the pending stage. Now it is almost a done deal: the property is taken off the market, the buyer (typically) doesn’t accept backup offers, and the sale is binding on both parties.
If there was a property that you or one of your clients were interested in, and it’s in the pending stage, you can only get it if the existing deal falls through. The chances of acquiring it are not zero but they are slim.
Under Contract vs. Pending: What are the Differences?
What are Contingencies and why are they added in real estate purchase agreements?
Contingencies are conditions that must be met for a real estate transaction to proceed to the sale stage.
Contingencies allow parties involved in a real estate contract to back out if the conditions are not met.
The conditions are specified in contingent clauses included in the contract. The buyer and seller must agree to all contingent clauses and sign off on the contract before it becomes binding.
Contingencies provide protection and room to maneuver for both buyers and sellers.
Here are the major benefits of contingencies in purchase contracts.
Protection for Buyers and Sellers
Contingencies protect buyers in several ways.
Contingencies provide time to conduct due diligence on properties and make informed decisions. Buyers can inspect properties thoroughly and assess their condition before finalizing the purchase. Thus, buyers can avoid surprises or unforeseen issues after closing.
Real estate deals include earnest money, a deposit the buyer puts down when going under contract on a property. Depending on the state of the market, the deposit can range from 1% to 10% of the sale price. Buyers can lose the earnest money if they default on the contract. However, buyers can protect themselves against such a loss by including contingencies in the contract that allow them to terminate the contract legally.
Contingencies also protect sellers by providing them monetary compensation or legal recourse in case the buyer fails to meet the stipulated conditions. The conditions can relate to a buyer's ability to secure financing, obtain a satisfactory home inspection, or sell their existing property. The seller can choose to cancel the contract and keep the earnest money deposit if the buyer is unable to fulfill these conditions within the specified timeframe.
Risk Mitigation
Buyers can mitigate risks by including contingencies that allow them to legally exit deals if conditions are not met. For example, buyers can terminate the contract if a property has defects or the sale price does not match its fair value.
Transparency and Trust
When buyers and sellers lay out everything in black and white, review and agree to it, there is very little room for miscommunication and misunderstandings later.
Contracts with relevant contingencies clearly define expectations and responsibilities and promote transparency and trust between stakeholders. Involved parties understand their rights and obligations, which helps to build confidence and goodwill throughout the transaction.
Negotiation Leverage
Contingencies provide negotiation leverage for buyers and sellers.
Buyers, for example, can use contingencies that allow them to negotiate terms and conditions, such as the price, if conditions are not met.
Sellers, for example, can use contingencies that require the buyer to purchase the property at a higher price if they fail to meet the specified conditions
Types of Contingencies in Real Estate Contracts
Every real estate deal is a minefield: huge sums are often involved, a lot can go wrong, and there is a real risk of legal ramifications. Therefore, it is best to consult with an experienced real estate professional or attorney when considering the exact clauses and contingencies to include in a contract.
Here are the most important contingencies for real estate purchase contracts.
Inspection Contingency
This contingency gives the buyer an opportunity to conduct due diligence. While the property is under contract, the buyer can conduct a professional inspection of the property. In this way, buyers can protect their interests by making sure properties are in good condition.
If defects are discovered during the inspection, the buyer can request the seller to carry out necessary repairs or renegotiate the price. If the seller does not immediately carry out repairs or agree to a renegotiation, the buyer can cancel the contract.
Appraisal Contingency
A seller can set any price for a property they own, which can be more than what it is worth. Since buyers are not real estate professionals, they might not know the real worth of a property and might agree to pay above fair market value.
The appraisal contingency protects buyers by ensuring the selling price does not exceed the property’s worth.
A licensed appraiser performs an objective appraisal of the property. The appraiser will consider multiple factors, such as the physical inspection, recent sales of comparable properties, and the property’s neighborhood. After a thorough evaluation, the appraiser will determine the property value.
If the property does not appraise for the amount specified in the contract, the buyer can negotiate with the seller to lower the price or terminate the contract.
Financing Contingency
The financing contingency protects buyers from legal ramifications in the event they are not able to secure financing.
If a buyer is unable to secure a loan - due to a low DTI ratio or another reason - within the specified timeframe or if the loan terms are not acceptable, they can withdraw from the contract without incurring a penalty.
Since buyers can lose time, effort, and money if a buyer is not able to secure financing, they must investigate the buyer’s ability to secure financing before accepting any offer.
Simplifying the Sales Process in Real Estate
Under contract and pending are distinct stages in real estate transactions. However, these are not the only stages. Several stakeholders and documents are involved in each stage.
The real estate transaction process is complex and speed is of the essence. With the right tools, you can simplify it, speed things up, and outwit the competition.
“Everything should be made as simple as possible, but no simpler”. Albert Einstein.
Docupilot is a document automation solution that can help you do just that. You can create a template for each type of document needed for each stage of the process, connect to data sources, and automate document generation. Once documents are ready, you can deliver them to clients in the blink of an eye. With integration support for 70+ third-party apps that include Zapier and Airtable (via a native extension), you can automate your document workflow from your existing applications.
Real estate document automation with Docupilot is a win-win for sellers, buyers, and realtors.
Conclusion
Your dream property just went under contract. Don’t worry, you can still make an offer. However, if you take too long and the property moves to the pending stage, you might be forced to consider another option.
Even if you make an offer, you can still lose out big time if you neglect to include even one important contingency in the contract.
Creating contracts is hard, but it doesn't have to be. With Docupilot, you can rest assured that your contracts will have the necessary clauses and contingencies that cover all eventualities and protect you and your interests.
Contact Docupilot today for a no-strings-attached free trial, or book a demo.
FAQs
What is the difference between "Under Contract" and "Pending"?
Under contract means a buyer has accepted an offer but the sale will proceed after contingencies spelled out in the contract are met. Pending means the contingencies are met and the process can proceed towards closing.
Can a property under contract or pending status accept backup offers?
Unless a specific clause in the contract prevents it, a seller can accept backup offers for a property under contract. However, once the contingencies are satisfied and the property moves to the pending stage, the buyer cannot accept new offers unless the current deal falls through.
