What does under contract mean?
When buying a house what does under contract mean? Is it the same as under offer? If you’re a buyer or seller asking these questions, you’ve come to the right place!
Here, we take a close look at the difference between under contract and under offer, and what it means for you. We also answer some frequently asked questions about properties under contract to help you better navigate the property sale process.
What does under contract mean?
“Under contract” means different things across industries, so what does under contract mean in real estate?
When a house is under contract, the vendor and buyer have exchanged a signed contract of sale for that property, usually via the seller’s agent. A property under contract is considered “sold”. As the exchange is a pivotal moment in the sales process, contracts for properties in Australia must be in writing and signed by both vendor and buyer.
Once contracts are exchanged, sellers are legally bound to the sale. On the other hand, buyers get a “cooling off period” during which time they can “cool off” or withdraw from the sale. While cooling off periods vary in length around the country, you can generally apply to extend, reduce, or waive them by negotiation.
The exchange of contracts also marks the time buyers pay their home deposit (typically 10% of the purchase price). As contracts are signed and the deposits usually paid on the spot, cooling off periods don’t apply for properties purchased at auction.
What conditions need to be met for a property to be under offer?
You’ve probably heard of a property being “under offer” meaning the vendor has accepted an offer but no contracts have been exchanged. Usually, this is because conditions have been placed on the offer by the buyer. These conditions need to be met before contracts can be exchanged and the property is considered sold.
Commonly, these conditions are:
- Subject to building and pest inspections. Buyers may withdraw their offer if these reports identify serious issues such as structural faults, mould, or termites.
- Subject to sale. This means the buyer is using the sale of their own property to fund their new one. This is risky for both buyer and seller as the buyer might not get their asking price and need to withdraw. On the other hand, if the buyer takes too long selling, the vendor may accept another offer for a quicker sale.
- Subject to finance. This condition gives buyers time to secure a mortgage after their offer is accepted. If the buyer’s application is unsuccessful, the property is no longer under offer.
The process once a property is under offer
If you’re a buyer and had your conditional offer accepted, it’s up to you to fulfill the conditions so contacts can be exchanged.
Now’s the time to finalise your finance and organise a pre-purchase building and pest inspection report from a qualified building inspector. If your offer is subject to sale, your focus should be on selling your own property as quickly as possible to avoid being gazumped (see FAQs below).
Once conditions are met, the next step is to exchange contracts and wait around six weeks for settlement day when the property is officially sold. At settlement, the remaining sale price is paid, and the title transferred to the buyer.
How to make an offer on a property
If you’ve found your dream house and want to take it from “on the market” to “under offer”, here are some tips for making an offer on a property:
- Get your finances pre-approved. This will give you an idea of what you can afford and give sellers confidence in your offer.
- Have the contract reviewed. Ask the agent for a copy of the sale contract and seek legal advice from a solicitor or conveyancer.
- Get a pre-purchase building and pest inspection. Undertaking these inspections before making an offer saves time later, especially if you are also selling your own property. It also places one less condition on your offer for a quicker sale.
- Do research. Knowing the value of similar properties in the area can help you decide on a reasonable offer.
- Make your offer. Offers can be made verbally or by writing a letter of offer to the agent that includes the official amount you’re offering, deposit amount, any conditions or clauses, plus settlement period. Your solicitor or conveyancer can help you prepare the letter.
Sometimes, you may be asked to pay an “expression of interest” deposit when making your offer. This deposit doesn’t guarantee the property will be sold to you or that you’re obligated to buy it, but it does show your offer is serious. If the sale doesn’t proceed, your deposit is returned.
Frequently asked questions about under contract properties
Is there a difference between under offer vs under contract?
What is the difference between under offer, unconditional and sold?
Can you make an offer on a property that is under offer?
How long do cooling-off periods last when purchasing a property?