When Is A Home Sale Legally Under Contract?
When it comes to buying and selling homes, the one thing both the buyer and seller agree on is that they want the sale legally under contract as soon as possible. But then, at what stage is the house ‘legally under contract’? This is a question that is not as simple as it sounds. However, let’s look at the simplest form of a sales contract.
A seller lists their home through a real estate agent for a certain value. A buyer contacts a buying agent and makes an offer for the home. The buying agent will fill out a purchase agreement with the stated offer. This is presented to the seller’s agent who in turn passes it on to the seller. Sounds rather convoluted, but it’s a system that actually works quite smoothly.
At this point, the seller can either accept the offer, in which case, they sign the purchase agreement, they can reject the offer, or they can make a counter offer. Once the seller signs the purchase agreement, the home is said to be legally under contract. However, in reality, it is not until the buyer receives formal notification that their offer has been accepted that a contract is formed. In some circles, once an offer is made, even if verbally, and that offer is accepted, again verbally, then a contract of sorts exists. They are right, but the home is still not legally under contract until both the buyer and the seller have signed that purchase agreement.
Even though the home is now ‘under contract’, the sale is not a done deal. There are contingencies that must be met, for example, the home and pest inspections and the title searches. Once all contingencies have been met, and the buyer has signed off on these contingencies, then the sale is a done deal. At this point, the only step left is settlement day – and for both parties, that can’t come soon enough.
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February 13th, 2011 at 8:42 pm
good article. Another stumbling block to having the “contract” fall apart is when the bank’s home appraisal comes in under the sales contract price. Due to this economy, it is happening more frequently than in the past.