- Brush up on the home buying lingo as you go through the process.
- Be able to explain what a real estate listing means if the property is ‘under offer’.
- Discover how ‘under offer’ is not the end of the story.
There are a lot of jargon terms in the property-buying process that can be confusing. ‘Exchange of contracts’, ‘conveyancing’ and ‘settlement’ are just a few. Another is ‘under offer.’
In this guide we explain what it means when a property is under offer and why you can still have a chance of buying a property that has been under offer.
In this guide
What does Under Offer mean?
When someone makes an offer on a house but hasn't exchanged contracts yet, it means the property is ‘under offer.’ Usually there will be conditions that will have to be met before the property is listed as ‘under contract.’ At this ‘under offer’ stage, the offer to buy is conditional.
Conditions that need to be met
There are usually conditions attached when a property is under offer. Only once these conditions are met will the property proceed to final sale. Some of the common conditions are:
1) Subject to finance
In many cases, a buyer will make their offer subject to securing finance to buy the property and this clause will give the buyer time to do this. Buyers may even have mortgage pre-approval from a lender but hit a snag when they go to have their mortgage application unconditionally approved.
Should the buyer be unable to get a home loan, including if the lender values the property at less than the sale price, then the property will no longer be under offer and will be available to other potential buyers.
2) Subject to sale
A ‘subject to sale’ condition is placed on a property that’s under offer when the buyer has to sell their own property first before they have the funds to buy their new home. This condition can make things tricky, however. It may take longer than expected for the buyer’s property to sell and the seller may get impatient.
As well, the buyer might not realise the price they expected from their sale and fall short of what the seller wants for their home. Both these situations could result in the offer falling through and the home again becoming available.
3) Subject to building and pest inspections
This is where the buyer gets reports from qualified inspectors on any existing or potential problems with the home. Problems can include cracking in concrete slabs, drainage issues, mould, problems with roofing and of course, termites. Issues such as these may see the buyer pulling out of the sale.
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Under Offer vs Under Contract
When a property is under contract, it is further down the track towards a completed sale than when it is under offer.
A property is under contract when an offer has been accepted by the seller and identical, legally binding contracts have been exchanged by both buyer and seller.
As explained above, a property is under offer when a buyer’s offer is accepted but the sale is conditional - one or more provisions must be met before the property changes hands.
What happens next
- Offer acceptance. Should all the conditions of sale be met (e.g. subject to finance, subject to sale, subject to building and pest inspection) the offer will officially be accepted and the buyer and seller will move to the next stage, where contracts are exchanged.
- Contracts exchanged. After a seller officially accepts an offer for their home, the buyer pays a small deposit and buyer and seller exchange identical, legally binding Contracts of Sale and the property will officially be under contract. However, it doesn’t mean that the sale is finalised.
Following exchange of contracts there is a cooling-off period. The minimum cooling-off period varies from state to state but it can usually be extended by negotiation:
- NSW - five business days
- Queensland - five business days
- Northern Territory - four business days
- Victoria - three business days
- South Australia - two business days
- Tasmania - no mandatory cooling off period
- Western Australia - no mandatory cooling off period
During the cooling-off period, you can conduct further inspections or may just change your mind and pull out of the contract. If you pull out, you will have to pay a penalty fee. (In NSW and Queensland it’s 0.25 per cent of the sale price, in Victoria it’s 0.2 per cent and in South Australia it’s up to $100).
This is where the sale is completed. You pay the remainder of the contract price to the seller and you get the keys to your new home. The period between exchange of contracts and settlement is known as the settlement period and can take anywhere between one to three months.
Gazumping an Under Offer property
When a home is under offer, it can’t be sold to anyone else. However, because offers to buy can often fall through, the vendor is still still allowed to market the property and hold inspections.
If it’s a property you are keen on, this could be an opportunity for you. While you can’t make an offer, you can still tell the real estate agent you are interested in the property and if the deal does fall through, they are likely to approach you.