It’s a great feeling to sell your house, but at what stage is your home truly “sold?” In the real estate world, there are a number of different phrases you might hear. One very important one is “under contract” (or sometimes “in contract” or ‘in escrow”).
It’s important to know there is a big difference between “under contract” and “sold.”
What Does it Mean to Be Under Contract?
In a general sense, being under contract implies that you are in the closing process. You have accepted a purchase offer from a buyer. A purchase agreement contract has been signed by both parties. However, the house is not actually sold until it is sold. Let’s explain further.
The closing process itself has a number of crucial stages. It can be somewhat stressful for the seller because the sale could be nullified or altered depending on how these closing stages proceed. Here are the key stages, though the closing process can vary depending on your state and county.
Accepted Offer—The buyer and seller have both agreed to the primary terms of the real estate transaction. This will obviously include the selling price and other details, generally including the buyer’s financing plan, down payment, earnest money deposit (if applicable), buyer or seller contingencies, settlement date, and any other important contractual details.
Home Inspections—A licensed or certified home inspector (depending on your state’s requirements) will be brought in by the buyer to inspect the house. Secondary inspections and specialized home inspections (roofing, natural hazard, etc.) may also be required depending on the age, design and location of the property—or at the recommendation of the primary home inspector. As a home seller, it’s wise to disclose any known problems with the house or the property when listing the home and negotiating the contract. These problems will likely be revealed during home inspection(s), and can potentially derail the entire transaction if the buyer isn’t okay with something unexpected in the inspection report. This is not the time to have a problem with trust between parties.
Renegotiations (if necessary)—The home inspection report can sometimes lead to renegotiations or new stipulations that need to be added to the contract per the buyer and/or seller. Let’s say significant roof damage is found during the inspection. The buyer may choose to acknowledge that information and let the transaction move forward as planned. They could request that the seller properly fix the roof before the property can be sold at the agreed-upon price. Or, the seller can offer credits or a price reduction to cover the cost (or partial cost) of getting the roof repaired. This is commonly done to avoid any further delays in the closing process. In this example, roof issues can also impact the ability to obtain homeowner’s insurance coverage and/or a mortgage.
Appraisal—Moving onto the buyer financing side of things, the mortgage lender will order a home appraisal. An appraiser will provide an appraised current value of the home and property. This is crucial to the closing process because the lender is making sure that the house being bought is properly evaluated and worth issuing the loan at the borrower’s requested amount. If there is a large gap between the appraisal and the home loan, it doesn’t mean the mortgage will be denied. There are ways to work around this. It’s just one more wrench in the works, and in some cases, can end the sale altogether.
Mortgage Approval—Ultimately, the appraisal is a key step in the buyer’s mortgage loan being approved by the underwriter. They will review the financial history and present financial condition of the borrower to determine if they qualify for the specified loan amount. In today’s market, it is highly recommended that all home buyers get pre-approved by a reputable mortgage lender before they even start searching for a house. This enables them to know how much they can actually afford while also making the final loan approval process go much smoother. Home sellers should be wary of any offer that does not include a mortgage pre-approval letter. The only worthy exception is when the buyer is paying all cash.
Other Steps—There are many other smaller steps that must happen during the closing process, such as the buyer getting homeowner’s insurance and hazard insurance. They will need to pay any out-of-pocket costs that are required as part of their end of the contract, such as the down payment, inspection fees, property tax pre-payment or any earnest money being offered. Some of these fees may also be covered by the seller as part of the contract agreement. Every real estate transaction is a little different, and as we said, may vary also a little by city, county and state.
Home Sellers Must Be Patient
Unfortunately for the seller, there are many things that can potentially derail the transaction or alter its path to cause delays, additional costs, and renegotiations. This is why the closing process usually takes at least 30-45 days and sometimes longer depending on the complexity of any given home sale.
So, when you accept an offer and sign that sales contract, the sale is actually still far from complete. It is not sold until everything is finalized and the transaction is officially “closed” according to the title company. Then, the title deed and keys can be transferred over to the buyer. Any proceeds from the sale can be wired to the seller. Then, and only then, is your house truly “SOLD.”
If you have questions about the real estate process—as either a buyer or a seller—in the Southeastern Pennsylvania or Northern Delaware areas, contact The Cyr Team for a no-obligation real estate consultation. We’ll help walk you through everything you need to know and prepare you for a successful home purchase or sale.