What Does ‘Under Contract’ Mean in NYC Real Estate?

By: Abdullah Haroon

Buying or renting a piece of real estate property in NYC is quite technical. There are a lot of laws that regulate the process and then there is a lot of detail that goes into it. One may simply not come and buy without taking the help of a real estate agent or investing time in learning the local law.

Under contract is a phase in your home purchase process when you are one step ahead of your competitors but not the owner yet. You carry an edge being under contract but still, things may get reversed until the final agreement.

Let us get to know about the under contract in NYC:

What Does Under Contract Mean in Real Estate

It is a stage in your contract when the seller accepts the buyer’s request and both have agreed on the terms and cost and have signed an initial document subject to the closing on the final signature.

It means that the seller is not obliged to hand over the property to the buyer until the agreed terms are not met and final signatures are not done. Though the deal is considered done still anyone can come and bid for the property. If the seller deems the new bid worthy enough, he may walk out of the under contract without consequences.

It is the initial phase of the purchase agreement and is usually done when there are conditions to be met by either or both parties. Seller may give time to the buyer for arranging a down payment during this time and, if able to manage, can buy the property. In the same vein, the buyer may ask the seller that there is maintenance work that needs to be done during the under contact phase before getting a final agreement.

The purchase agreement is the document that holds the legal value and carries the terms and conditions that both parties agreed. From a buyer or tenant perspective, it would contain clauses of fixing any underlying issues in the building or maintaining wear and tear, etc. While from a landlord’s perspective, it is likely to include a clause about the monetary method and in-time payments. It would state the responsibilities of the tenant as well as of the landlord, categorically to avoid any confusion.

Major Takeaways:

As soon as the agreement is finalized, the property transforms from available to ‘under contract’. It is likely to have contingent or pending issues that must be addressed in the given period.
It is the initial signal that the deal is ready to be done and the agreement has been signed.
If there are any conditions or contingencies set in the under-contract, they have to be fulfilled during the said time.
If there is any repair or maintenance work mentioned in the under contracts such as inspection, appraisal, repairs, or renovation, that needs to be done.
Same way, if time is taken to arrange a mortgage during the under contract period, the buyer has to get it done.
Once the conditions are met, a closing date can be finalized.

Before the final agreement, the insurance shall be done as well.

Contingent vs. Pending:

In a legal term, the contingent is a situation where your offer is subject to certain conditions while you have agreed on the terms. To carry on the under contract towards the final agreement, those conditions must be addressed.

It provides a way for the buyer to walk away from a deal if contingents are not met as mentioned in the under contract and the buyer would not have to face any consequences or penalties for it.

Now when all the conditions or contingents are met, you may call it a pending sale.

Now, the process of inspection will be executed to confirm that the issues have been resolved and payment would be arranged. The difference between contingent and pending is that the former is the transition phase where the contract is subject to certain conditions while the latter is just a final signature away from handing over the property from seller to buyer.

Reasons Why a Deal Falls Through:

During the under contract period, there are hosts of factors that may contribute to breaking a deal. They could be as under:

Ownership of the Property:

During this time, legal documents for the ownership of the property will be checked that who owns the house and who has a right to sell it. The title company would do the job and figure out if there are any pending disputes about the property that would affect the transfer of property. The deal cannot be finalized if anything disturbing is found out by the title company.

The Appraisal:

At this stage, it would be seen if the property is worth to total loan requested for it. The bank would decline the request if found that the home is worth less than what is asked for. The buyer may renegotiate with the lender or simply may walk away.

Home Inspection:

If there had been an issue in the building that was mentioned in the under-contract as contingent, it would require the final inspection to see if it is addressed or not? If you feel satisfied that what you asked for is executed and now fulfills your requirements, you may proceed with the agreement or may walk away without consequences.

Can You Buy a Home That’s Active Under Contract?