As we all know, the real estate market is full of jargon that is puzzling and confusing for most home buyers. The term under offer is no exception to this splendour.
If you’ve been house-hunting online, you might have seen properties marked as under offer, despite still appearing in the “for sale” section. In this article, we break down what under offer means and explain its relevance to you as a potential home buyer.
What Does Under Offer Mean in Real Estate?
In its most basic definition, a property is under offer when the buyer submits an offer on the house and the owner accepts it by signing a contract. However, since the contract is yet to be finalised, the agreement is not considered complete, and the house is ‘technically’ still ‘for sale.’
Accordingly, it indicates to interested parties that the property is about to be sold.
Nonetheless, it is always possible that the sale may not go through. This is because, at the under offer stage, the offer on the house is conditional and will remain conditional until all contract requirements (building/pest reports, finance approval, etc.) are met.
Is Under Offer the Same as Sold?
The simple answer is no. However, if you’re interested in purchasing a property, it is important to know whether it is under offer. This is because if it is under offer, you may still be able to negotiate with the seller to purchase the property.
When the property has settled, and home ownership is transferred to the new buyer’s name, the property is officially treated as ‘sold.’
Once the settlement date has passed and the contract is officially complete, the new owner can pick up the house keys and move into their new home as planned.
Requirements to Be Under Offer
1. Subject to Finance
In several instances, a prospective buyer will condition their offer on acquiring the required funds to buy the house, and this stipulation will allow the purchaser time to do so.
In this sale condition, the offers of interested buyers on the listed properties are subject to a finance clause to buy that particular property.
If prospective investors submit a bid on the house and sign the contract but cannot gather deposit funding through a credit provider, they must forfeit the house.
In addition, a house valued lower than the asking price will no longer be under contract and become accessible to other prospective investors.
A subject to finance stipulation informs the seller that you consent to the property’s acquisition on the condition that you receive an official home loan sanction from your lender. If your loan request is refused, it safeguards you from losing your deposit.
2. Subject to Sale
A subject to sale is an offer on an estate with a condition: the buyer’s property must first be sold before they can buy. So, if you’re planning to upgrade to a better home and make this offer, it will only be accepted when your current home is sold.
That being said, this condition can pose challenges. For example, the potential investor’s residence may take more time to sell than anticipated, and sellers may become restless.
Moreover, the purchaser may not receive the premium they anticipated from their sale and thus fall well short of the amount the vendor desires for their residence. Each of these scenarios might lead to the offer falling through, and the home becomes available again.
3. Subject to Building and Pest Inspections
‘Subject to building and pest inspection’ refers to a property exchange that relies on the purchaser’s satisfaction and gratification upon a building and timber pest inspection.
It is prudent to hold inspections, especially when purchasing an aged property with various concealed problems or defects. A building and pest inspection could also aid relatively new houses to guarantee that any termite treatments adhere to Australian standards or codes.
As a buyer, you could provide a ‘subject to building and pest inspection’ condition to your agreement. This signifies that the purchase will not be finalised until a conventional building and pest inspection is completed.
Does Under Offer Mean Off the Market?
Other prospective buyers can still make an offer when a residence is under offer. This is because the purchase is not enforceable by law (as the contract is still conditional), opening the possibility for other offers.
Some real estate agents may restrict the viewings on an under offer property, but it will remain on the market.
You could contact a real estate agent if you’re looking for a home. However, before bidding on anything you find on the internet, review the appropriate disclosure statement and the critical demographic determination.
At first glance, it may appear a pointless exercise. But in Australia, making a failsafe bid on a property can help you reach an agreement on a house hunt.
Many realtors cease all previews on an under offer estate, but this does not automatically imply it’s off the market, and making a deal without viewing is not illegal.
How Is Under Offer Different Than Under Contract?
The terms ‘under offer’ and ‘under contract’ are often used interchangeably, but they mean different things.
Knowing the basic difference between the two will ensure you do not miss out on any deals.
Under Offer
When an estate is under offer, a proposal has been accepted, but the sale is yet to take place. It usually indicates that specific requirements must be fulfilled before exchanging and signing contracts, at which point the estate is put under contract.
It is said to be under offer whenever an offer is submitted and accepted. The vendor, realtor, and purchaser will sign the agreement, but the deal will not be finalised until the parties agree to the terms and conditions.
If a contract stipulation is not satisfied, the agreement will be terminated, and the estate will no longer be available to sell.
Under Contract
After the seller accepts the offer, an agreement must be signed by both the purchaser and the seller. Once signed, they have a legally enforceable contract.
Each side obtains a printed copy or digital replica of the other party’s signed document. This is known as a contract exchange, and the house is now under contract.
When a residence is under contract, it is crucial to recognise that the sale has not yet been completed. The deal can be ended at any point during the cooling-off period if the criteria are not met.
How Long Can a House Be Under Offer For?
There isn’t any set time limit for just how long a residence can be under contract. The estate can continue to stay on the market as long as the parties negotiate throughout the contract-making and contract-exchanging process.
So, what happens when a house is put up for sale? Typically, the proposal will include the following stages:
- The bidder submits a formal offer on the house.
- The proposal is either accepted, countered, or rejected by the seller.
- If the seller counters, the bidder can either concede it or make a new offer.
- If the seller takes up on the buyer’s offer, they will proceed with the contract exchange.
- If the seller rejects, the buyer has two options: make new offers or keep looking.
Can Under Offer Fall Through?
The contract exchange may still fall through if and when an estate under offer has not reached the point of accord between the seller and buyer. If the parties involved cannot strike a deal or either side changes their minds, the other may withdraw from the agreement.
An under offer status is not enforceable by law, and neither the buyer nor the seller is obligated to complete the sale.
What Happens After?
If all the selling requirements are fulfilled, the proposal will be formally acknowledged and accepted, and the seller and the buyer will proceed to the subsequent phase, where contracts will be exchanged.
When a seller formally accepts a fair offer on their property, the bidder deposits a small amount. The two parties share identical, legally enforceable contracts of sale, putting the property under a contract. However, this does not indicate that the transaction is complete.
After the contract exchange, there is a cooling-off period. This period varies from state to state, although it can usually be extended through negotiation.
You can carry out extensive safety checks throughout the cooling-off period or reconsider your decision and cancel the contract. If you withdraw, you may be subject to a surcharge.
After you have paid the remaining amount of the asking price to the seller, you will receive the keys to your new residence. The time frame between the contract exchange and the final settlement is called the settlement period. It may last anywhere from one to three months.
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