Shades of “In Contract”

This is the continuum of how “in contract” a house it.

Imagine you are a buyer looking at houses and you want to know how available a house is based on its “MLS status.” In order from most available to least available, here they are:

Most Available

  • The seller advertises that he will sell for the listed price. Make an offer!
Back on the Market
  • Same status as active, but the house was previously in a contract that fell through for some reason.
Active* …

*But Listed Very Low

  • When the list price is clearly below market value, it has only been on the market a few days, and it is a hot sellers’ market, there could very well be multiple offers arriving to the seller, and the house will go to the highest strong offer. These usually close for near market value rather than the advertised lower price, or “over list price.”
Contingent Escape
  • This means that the seller has a buyer who intends to purchase, but the seller demanded that the contract include an “escape clause” that he can “escape” from the contract if he chooses, i.e. something better came along.
  • The most common reason for a Contingent Escape status is that the seller received an offer from “buyer 1” that was contingent on the sale of another house. Rather than deny the offer, the seller gives buyer 1 a chance to perform, motivating buyer 1. However, knowing that such an offer can take a long time and be very fickle, the seller wants to have the option to take a stronger offer if buyer 2 comes along to swoop the house up.
  • When I want to search for just houses that are truly available, I do include Contingent Escape. These are not common, and it is better to be buyer 1, but they are likely to be available if you really want them.
  • When Contingent Escape, you are buyer 2, and you have to contend with buyer 1, but the seller is not obligated to sell to buyer 1. The seller can choose your offer if he decides that it is better.

Probably not Available

“Contingent on Finance and Inspection”
  • “Contingent on Finance,” and “Contingent on Inspection” do not exist separately as options on the MLS when the listing real estate agent enters status data. Therefore, when you see “Contingent on Finance and Inspection,” the seller has accepted an offer from a buyer, but the contract is still contingent on both or just one of these, finance or inspection. You do not know which without calling to ask. The agent / seller are not obligated to disclose the details of the contract.
  • The seller must sell if the buyer performs.
Contingent on Inspection
  • This means that the seller has a buyer, but the buyer has not yet completed the inspection portion of the due diligence. The inspection is probably the most common reason that a house returns to the market, but still is fairly rare. Either the inspector finds something unexpected that is wrong with the house, or finds something that that particular buyer will not accept.
  • When this falls through: the house is in contract, and the buyer orders the inspection. The inspector lifts up insulation that covered the basement wall and sees large cracks in the concrete blocks, indicating that the foundation is shifting. The buyer is now looking at a house with a major problem that affects the sale value and the buyer’s overall interest. The seller will now probably have to go back on the market, and now officially knows about the cracks and is legally obligated to disclose the cracks to all future buyers.
  • The seller must sell if the buyer performs.
Contingent on Finance
  • This means that the seller has a buyer, but the buyer needs a loan and does not yet have a loan commitment. The deal is very likely to close, but there is a chance that the appraisal will be low, or the bank may do an inspection and decline to lend on the house.
  • When this falls through: if the appraisal comes back below the contract price, often the buyer asks the seller to drop the price. The seller can then decline and go back on the market, accept the lower price, or demand that the buyer bring cash to cover the difference over the appraisal. The buyer is not required to brign cash unless that was written into the contract. These usually close, but in hot markets where buyers go over market value to get a house into contract, these deals fall through sometimes.
  • The seller must sell if the buyer performs.

Pretty Much Sold

  • This most often means that the seller has accepted a cash offer, no inspection, and is only waiting for the scheduled date at the title company or lawyer’s office to close the deal.
  • When a bank / loan is involved, once a contract has progressed through the inspection and remedy period, the appraisal is complete and sufficient, and the bank has issued a loan commitment (commitment is much more than a “pre-approval”) the status becomes pending. In the most common transactions involving banks and loans, the loan commitment is not issued until just a few days before closing, so the listing agent never changes the status to pending just for a few days. These go directly from “Contingent on Finance and Inspection” to “Closed.”
  • The seller must sell if the buyer performs, and the buyer is finished with due diligence. Pending houses are pretty much sold.
Not for Sale
  • What it means: You can make an offer on a house that’s not for sale, but of course you have to offer enough to make the owner want to move unexpectedly.
  • What you have to do to buy it: you approach the owner personally or through an agent and make an offer. The owner has to accept the offer.
  • Cool story: I heard of a couple in Washington DC who lived in a townhouse worth ~$800,000. They lived in the townhouse because they had sold their house in a nearby neighborhood that was worth ~$1.5 million. It was not for sale, but sold like this. They were eating dinner one evening and they heard a knock at the door. There was a Chinese couple at the door who asked to look around the house they’d like to buy it. The owners said, “Uh, OK, why don’t you come back tomorrow at x time.” The Chinese couple returned the next day, looked around and said, “We would like to buy it ‘as-is,’ with the paintings on the wall, furniture, everything, all included, how much?” The owners consulted with a real estate agent and a lawyer, and asked for $2.5 million. The Chinese couple agreed. Sold! for an extra $ 1 million. The Chinese couple’s daughter was attending a nearby university and they wanted a place to stay while they visited.
  • There are also companies that make offers on houses not for sale from distressed owners. “Cash for your house!”

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