What does “under contract” mean?
The words "under contract" or "under offer" don’t necessarily mean that a property sale is a done deal.
Key takeaways
- If you see a property listing which says 'under contract' this means a buyer has made an offer and signed a contract.
- Although a contract has been signed there are still conditions that need to be met for the sale to go through.
- A property is only listed as 'sold' once all the conditions of the contract have been met.
What does under contract mean?
If a property is under contract (or under offer), the vendor and the buyer have agreed on a price for the property and signed a contract. But that contract is still subject to conditions and could fall through before the sale is completed.
A property can only be listed as "sold" once all the conditions of the contract have been satisfied. Until then, it is either "under contract" or "for sale".
What should a contract of sale contain?
When you're buying a property it's important to know what to look for in the contract of sale. You should always have a conveyancer check the contract before you sign anything.
Aside from making sure that it is drawn to your name, your home purchase contract of sale should include the following:
- Names and addresses of both the seller and the buyer.
- A description of the property you are going to buy which includes the complete address and the exact measurement of the property.
- Things that are included or excluded in the sale such as furniture and lighting fixture.
- The total purchase price which includes the deposit.
- The amount of the mortgage to finance the house.
- Inspection reports and necessary inspections performed by the buyer before closing the deal.
- Property taxes and other adjustments.
- Details of the settlement.
'Subject to' clauses in the contract
Your home purchase contract of sale should also include 'subject to' clauses. These clauses include contingencies which protect your rights as a buyer.
This contingency contract gives the provision that you and the other party are legally obligated to the contract if any events stated in the contract happen.
A good solicitor will be able to draw up a contingent contract that will maximise your rights and protection as a buyer.
Subject to inspections clause: A subject to inspection clause is put in place when a buyer tells a vendor they want to buy a property subject to building and pest inspections. However, unless the property is likely to fall apart because of a major defect, this clause won't be enough to allow the purchaser to get out of the contract.
Subject to finance clause: A subject to finance clause allows the buyer (in some circumstances) to exit a contract if finance falls through. In other words, you make an offer on a property and sign a contract but then you fail to get a home loan approved.
Buyers often think that they can sign a contract subject to finance and then if they encounter difficulties or if they change their mind, they can simply cancel the contract based on the fact that they don't have finance approved. But this is not always the case.
Expert insight: Why sold property listings are still helpful
"There's an added benefit to seeing under contract properties still listed on the real estate websites. These properties give you a great sense of what other comparable properties will sell for. You can use this information in comparison to the other property you're interested in to know how high or low to make your initial offer."
When a contract of sale isn't final
Once you have signed the contract of sale, many states provide what's known as a "cooling off period". The cooling off period is simply the period provided where you can cancel an agreement if you change your mind; otherwise, you are bound by the contract after that.
The cooling off period starts after the purchaser has signed the contract. This is usually 5 business days long, which means Sundays and public holidays are excluded; thus, if you received the contract on a Wednesday, your cooling off period will end at 5PM on Monday. The cooling off period, however, can be reduced or extended as per the seller's agreement.
It should also be noted that the cooling off periods are not the same in all states or territories; nor does it apply to properties sold at auctions. A nominal deposit would normally be placed in this situation. There is also a risk that some or part of purchase price can be lost if the purchaser does not proceed. Check your state for laws.
A state-by-state guide to cooling off periods
What is gazumping?
Even if you have a verbal agreement in place to buy a property, it is not officially "off the market" until contracts have been signed and exchanged by both the vendor and buyer. So before this happens, there is the risk of another buyer coming along and putting in a higher bid - this is known as "gazumping".
There are several steps you can take to avoid being gazumped, such as getting loan pre-approval and organising building inspections during the cooling-off period. You can read more about these strategies in our gazumping guide.
Why are under contract properties still listed for sale?
Under contract properties are still featured in online property listings because sale contracts can and do fall through all the time. From home loan rejections to simple changes of mind, there are plenty of reasons why a buyer may pull out of a property deal, so keeping an active listing offers a form of protection for the vendor (and the real estate agent).
If the conditions of the current contract aren’t met, the real estate agent will need to find a new buyer. Maintaining a listing on popular property websites and continuing to hold open-house inspections makes it much easier for the agent to track down another buyer if the first contract falls through.
Buying a property when a contract falls through
In certain circumstances, a previous contract falling over may increase your bargaining power when it comes to making an offer.
Having just lost a sale, the vendors may be keen to sell as quickly as possible.
Keep in mind that the real estate agent does not have any obligation to tell you why the previous contract was cancelled. So if there was something in the building and pest inspection that scared the first buyers off, you’ll have to arrange your own inspection to find out what that was.
Even if a property is listed as under contract, it’s still a good idea to attend an inspection and let the real estate agent know you’re interested. Not only will this action help you form a clearer picture of what’s available in your price range, but you’ll also be one of the first people the agent calls if the current contract falls apart.
Frequently asked questions about being under contract
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