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Understanding The Terms ‘Under Contract’ and ‘Under Offer’ in Real Estate

Under Contract vs Under Offer in Real Estate

under contract vs under offer in real estate

If you’ve spent any time browsing the popular real estate websites or just keeping an eye on the real estate market, you’ve probably come across the terms ‘under contract’ and ‘under offer’.

There’s common confusion around these two terms and their meaning regarding a property. When seen online or stickers on signboards out the front of a property, buyers will often question if that home is actually sold, if it’s worth still looking at the property in the setting of an open for inspection or if they should just give away their interest in it altogether. In this Besser + Co blog we define these key terms and discover the differences.

Under Contract

The term ‘under contract’ refers to when a buyer makes an offer on the property and it is accepted by the vendor, following the exchange of contracts between both parties. The sale is not yet official because of the cooling off period, which in Victoria is 3 business days from the exchange of contracts giving the buyers the ability to change their mind and withdraw from the sale, which incurs a small, but costly penalty, or if there is a ‘subject to’ clause.

This ‘subject to’ clause can include ‘subject to approved finance, building and pest inspection or the sale of their own home or investment property, for example. It could also be ‘subject to fixing a balcony, servicing the solar panels, etc’ – so the onus is on the seller, not buyer.

Some of these ‘subject to’ clauses can take a matter of days, some can take a matter of months. A real estate agent will continue to advertise the property online, but may not conduct open for inspections unless they feel that the contract may go into default. This can lead to buyer frustration as they are unsure of where they stand if they also want to make an offer.

Under Offer

The term ‘under offer’ refers to when a buyer has made an offer on the property and it has been verbally accepted by the vendor, but no contracts have been formally exchanged. This is usually due to conditions that need to be met before the agreement can be officially reached, like approved finance or a building and pest inspection, and neither party wants to sign the contract until it’s all complete.

Buyers will often put their offer in writing with the conditions, which stops the seller from signing. Buyers are better to include a clause in the contact that their offer is only available for a certain number of days or until a certain date, which puts pressure on the seller. The seller’s tactic might be that they are hoping for a better offer, and opens the opportunity for other buyers to come in with less restrictions.

The real estate agent will continue to advertise the property and do open for inspections with a property is under offer.

Cooling-Off Period

In Victoria, the cooling off period is the time immediately following the contractual agreement of a property sale if sold through an Exclusive Sales Authority. There is no cooling off period if the property is sold through an Exclusive Auction Authority if advertised 3 clear business days prior to or after an advertised auction. In Victoria, if the buyer chooses to ‘cool off’, the penalty for ‘cooling off’ is $100 or 0.2% of the purchase price, whichever is the greater.

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Conditional Offers

Conditional offers are frequent in the sale of real estate by private sale.

The most common conditions are:

  • Subject to building and pest inspections. Buyers have the opportunity to withdraw their offer if reports find significant issues with the property’s structural integrity, mould impact, termite infestation, water leaks or etc. It’s worth noting that the issue found must be a serious structural issue to permit the buyer from withdrawing from the contract, it can’t be something like a leaking tap. The idea of a building and pest inspection is that the buyer is making an informed decision on the purchase.
  • Subject to sale. This is the case of the buyer needint to sell their current property in order to finance the offer to purchase. This can happen quickly or take months, depending on market factors, the condition of their home (if it’s ready to sell), leaving the vendor in a position of unrest on whether to accept a different offer of potentially less in order to have a sense of closure.
  • Subject to finance. Even if a buyer is pre-approved for a purchase up to a certain dollar amount, the lender has to approve the property to satisfy their lending. However, some buyers are not pre-approved when they enter a contract of sale, which can take time after their offer on the property is accepted by the vendor. If the buyer fails in their application for lending, the condition will take effect and the property is no longer under offer.

Unconditional Offers

Bidding at auction is considered an ‘unconditional offer’ and once the gavel or contract hits the hand of the auctioneer, the final bid is the bid or ‘offer’ that buys the property. For properties available through private sale, or those who purchase 4 or more clear business days before or after an advertised auction, depending on the type of market, a buyer can strategically give an unconditional offer to give them more leverage to purchase the property.

This is useful when there is a lack of property on the market and an influx of buyers.  There is a degree of risk offering an unconditional offer, however it shows the seller that the buyer has confidence in their financial situation and in the property.

If the buyer has a level of risk, like not being able to settle by the settlement date due to the sale of their own property not coming to fruition to purchase the property, a loss of income or employment, a health concern that reduces their position to obtain lending, or even death of the purchaser, the purchaser (or their estate) can lose the deposit, plus pay for the real estate agents fees and any other associated costs in readvertising the property.

For the seller if the buyer defaults on the property purchase, it puts them in a position where they can sell the property for less than original asked, as they have the deposit from the original sale, or get more if the market price increases. However, it can put them in a concerning financial position if they have committed to purchasing elsewhere.

As a buyer, you should always take note when you see ‘under contract’ and ‘under offer’ displayed on a property. Let the agent know that you have interest in the property and that you want to be notified of the contract’s progress. They might ask you to give an offer that may be more to the liking of the seller if the other offer or contract falls through.

For further advice on real estate terminology and the entire property sector including selling, buying, renting and investing, be sure to contact one of the friendly team at Besser + Co.

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