Whatever the case may be, as with most details in a home sale, it\u2019s good practice to speak to a qualified agent<\/a> or real estate professional to understand your options. But we\u2019ve done some of the initial research for you and interviewed several experts about the ins and outs of kick-out clauses. Let\u2019s dive in and demystify what they are, how they\u2019re used, and their benefits and risks to both the buyer and seller in a real estate transaction.<\/p>\n In its simplest definition, a kick-out clause is a type of contingency<\/a>.\u00a0 A contingency is a particular condition that must be met in order for the home sale contract to close.<\/p>\n There are several different types of contingencies that may be included in a home purchase agreement, like home sale, appraisal<\/a>, title<\/a>, and inspection<\/a> contingencies.<\/p>\n A kick-out clause allows the seller to continue to market the property and \u201ckick out\u201d a buyer with contingencies if another buyer makes a better offer.<\/p>\n \u201cIt typically comes up when they’re [the buyer] contingent, when they have a home to sell that they may have listed,\u201d says Ruth Wordelman<\/a>, a Colorado Springs, Colorado, agent who sells 77% more homes than other agents in the area.<\/p>\n A kick-out clause gives the seller a way out of the contract if the buyer is unable to sell their current home. Typically the seller will also be able to continue marketing and showing the property \u2013 in some cases they\u2019ll even accept back-up offers depending on the location.<\/p>\n If the buyer doesn\u2019t sell their home, or if the seller receives a better offer (more on this in a bit), they can effectively \u201ckick out\u201d the buyer from the contract and proceed with another offer.<\/p>\n You\u2019ll see more kick-out clauses in a buyer\u2019s market with a healthy housing inventory, where a seller\u2019s more likely to accept a contingent offer. Conversely, in a seller\u2019s market, contingencies are less likely to be accepted when a listing is receiving multiple competing offers.<\/p>\n If you\u2019re a homebuyer, you\u2019ll want to put your best foot forward and make an offer that\u2019s as strong as possible.<\/p>\n But sometimes, it\u2019s not possible to forgo contingencies and you need to get your current house sold while you\u2019re shopping for another one. A kick-out clause may be in order. Here\u2019s how it works in the transaction:<\/p>\n The buyer requests a home sale contingency from the seller:<\/b> They\u2019ll ask for a certain amount of time \u2013 30, 60, or 90 days are common \u2013 and the agreed-upon timeframe will be added to the contract. This is also called the home contingency period.<\/p>\n \u201cMaybe it’s contingent on them [buyer] getting under contract, but it could be contingent on them actually closing on their property. Those are defined at the time of the contract,\u201d says Wordelman.<\/p>\n The clock starts ticking:<\/b> If the buyer sells their existing home within the contingency period, the purchase agreement proceeds and they\u2019ll close on the seller\u2019s home.<\/p>\n If the buyer\u2019s existing home doesn\u2019t sell and\/or if the seller receives a better offer:<\/b> This triggers the kick-out clause, which means the seller will notify the first buyer of the second offer. At that time, the first buyer has two choices and must decide quickly (72 hours is typical<\/a>, though the exact time frame should be written into the contract): either remove the contingency and proceed with the purchase of the seller\u2019s home or walk away from the purchase and void the contract.<\/p>\n \u201cIf they [seller] get a better offer, you could be kicked out of the contract if you cannot remove that contingency, if you can’t find supplemental financing so that it isn’t contingent on the home sale,\u201d says Wordelman.<\/p>\n The seller moves forward with the second buyer\u2019s offer:<\/b> The first buyer is eligible to receive their earnest money<\/a> back, as long as it\u2019s stipulated in the contract.<\/p>\n There are pros and cons to kick-out clauses, but they\u2019re different for the seller and buyer. \u201cIt all of course starts upon who has the most leverage in the deal,\u201d says Scott Smiler<\/a>, real estate attorney and partner at Gallet, Dreyer & Berkey in New York, who represents both buyers and sellers in property transactions. Understand what\u2019s at stake and your level of risk before you sign the dotted line.<\/p>\n As a buyer with a home to sell, you can make your offer more attractive and likely to get accepted with a kick-out clause.<\/p>\n It provides you with time to sell your current property while under contract for another home. Perhaps even more significant, it keeps you from having to assume and pay two mortgages<\/a> if it\u2019s taking longer than anticipated to sell your existing home.<\/p>\n As a seller, you\u2019ll have the peace of mind of having your home under contract with the ability to continue showing it to prospective buyers. The kick-out clause provides a way out of the contract in the event the buyer\u2019s unable to sell their home in a reasonable amount of time.<\/p>\n It also provides a way to void the contract if a better offer comes around. For example, if a second buyer offers more for the home or is paying with cash, a kick-out clause may come in handy. You would notify the first buyer of the second offer, at which point they would have 72 hours (or whatever time frame specified in the contract) to remove the contingency or cancel the contract.<\/p>\n Kick-out clauses can come with some uncertainty and risk, which is why it\u2019s important to understand what\u2019s at stake for all parties involved.<\/p>\n A home sale contingency could weaken your position if you\u2019re a buyer, especially in a hot real estate market where homes are receiving multiple offers. Simply put, it\u2019s tough to compete in a seller\u2019s market<\/a> with contingencies.<\/p>\n \u201cThere are a lot of people who would like to have a chocolate and vanilla deal rather than a rocky road deal. The less contingencies from a seller’s perspective, the better,\u201d says Smiler.<\/p>\n A kick-out clause is a compromise that could benefit buyer and seller, but a seller\u2019s less likely to accept one if they\u2019ve received competing contingent-free offers.<\/p>\n Unfortunately the risk doesn\u2019t end there. Because the seller may continue marketing their property while it\u2019s under contract, there\u2019s a possibility you may get kicked out of the deal if they receive a better offer or if you\u2019re unable to sell your current home in the time specified. You\u2019ll have the option to remove the contingency and proceed with the purchase, but you may be responsible for two mortgages until your home sells.<\/p>\n Accepting a contingent offer with a kick-out clause comes with some financial risk if you’re a seller. For one, other buyers who are interested in your home may hesitate to submit an offer if it\u2019s already under contract with a kick-out clause. They could potentially be put off knowing that their offer could be matched or even beat by the first buyer.<\/p>\n \u201cSome buyers are going to be reluctant to waste their time on a deal that is encumbered,\u201d says Smiler. \u201cThere’s plan A, and if you\u2019re plan B \u2014 not a lot of people like to deal with plan B, so it might be better to look at some other homes than to even get involved in these kick-outs that may or may not happen.\u201d<\/p>\n Another possible pitfall is if the first buyer can\u2019t sell their home and they back out of the deal, you may be left with an unpredictable back-up offer. For whatever reason, if the second buyer\u2019s unable to proceed with the purchase, you\u2019re essentially starting from square one.<\/p>\n There\u2019s a lot of coordination and communication between both parties so a home sale results in a successful and relatively stress-free transaction. While you could do it yourself, negotiating a kick-out clause may be better left to an experienced real estate agent<\/a> or attorney to protect your interests and minimize your financial risk.<\/p>\n Header Image Source: (Narcis Ciocan<\/a> \/\u00a0Pixabay<\/a>)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" A kick-out clause contingency in a home sale contract can benefit both buyers and sellers, but they do come with risks. Understand what it is and how to make one work for you.<\/p>\n","protected":false},"author":269,"featured_media":27061,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,700,646],"tags":[],"class_list":["post-27057","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-buyer-contracts","category-making-offers"],"acf":[],"yoast_head":"\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/10\/kick-out-clause-notebook-666x381.png\")
<\/a>Kick-out clauses, explained<\/h2>\n
How a kick-out clause works in a home sale<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/10\/kick-out-clause-kitchen-666x381.png\")
<\/a>Advantages of using a kick-out clause<\/h2>\n
Benefits for the buyer<\/h3>\n
Benefits for the seller<\/h3>\n
Kick-out clause drawbacks<\/h2>\n
Disadvantages for the buyer<\/h3>\n
Disadvantages for the seller<\/h3>\n
Don\u2019t kick-out clause alone<\/h2>\n