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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Kick Out Clause
In a real estate purchase transaction, when a seller accepts the buyer’s offer they sign a sales contract to confirm and initiate the purchase transaction. Most of the contracts are straightforward and may have fewer contingencies.
However, if there is a contingency where the buyer needs to sell his current home to buy the new one, the seller has the option to include a real estate kick out clause. In this post, we will understand what is a kick out clause in detail.
What Is A Kickout Clause?
Generally, once the seller and buyer sign the sales contract, the seller is supposed to take the house off the market, and cannot accept any more offers from other buyers.
The kick-out clause is a conjoined clause included by the home seller on a home sales agreement. In this clause, after the home seller has accepted the buyer’s offer with contingencies, the seller can continue to accept offers from other buyers.
In this type of clause, the seller is allowed to accept an offer with contingency and continue to search for an offer without any contingency.
In such instances, when a seller receives a better offer, it allows the seller to kick out the buyer with contingency and proceed with the second offer without any contingency.
The buyer with contingency will have up to 72 hours to either remove the contingency or walk away from the transaction.
How Does The Kickout Clause Work?
In most, but not all, kick out clauses will contain what is called a ‘right to refusal‘. This means that if a seller receives an offer from other buyers without any contingencies on a home, they must notify the original buyer and allow them to change their offer.
In most cases, buyers have 72 hours to recall their contingencies and decide whether to proceed with the sale. Otherwise, the original sale will be voided.
The buyer gets their earnest money back and the seller can proceed with a second non-contingent offer. If the original buyer accepts to remove the contingency, the second offer will be revoked and the original contract will exclude the contingencies.
It is also relatively rare for sellers to write blanket real estate kick-out clauses that allow them to accept good offers. Few buyers accept this.
For example, it is rare for a buyer to agree to this type of clause simply by accepting a higher sales price or waiving an important condition such as a home inspection.
Instead, most kick out clauses relates to special risks of sales contracts. The most common type of kick out clause is buyer home sale contingency.
In a home sale contingency, the buyer is given a certain amount of time to sell the home before completing the new home purchase, usually ninety days.
If the buyer fails to sell the house within the stipulated time, the purchase contract becomes void and the seller is free to put the house back on the market or accept the offer from other buyers.
Buyers like this situation because they avoid the risk of taking out two mortgages, and many believe they will use the proceeds from the sale of their previous home to pay down payment for their new home.
These clauses are rare when selling a home in a hot market, but even in a buyer’s market, few sellers may accept this type of clause.
What Are The Effects Of The Kick Out Clause On Buyers And Sellers?
Affects On Buyers: When the buyers make a home sales contingent offer, they risk losing their properties to another buyer if they are unable to sell the property within the specified time frame.
Affects On Seller: A contingency allows the seller to continue to put the home on the market once an offer is received. In other words, this clause in the sales contract allows the seller to “Kick-out” the buyer if a better offer is available.
Conclusion
Kick out clauses help buyers make a conditional offer on a home while giving them risk-free time to deal with contingencies.
Homeowners looking to sell their homes in a buyer’s market may be more than willing to accept less significant contingent offers if they are free to find a better deal.
As a buyer, you need to understand the specifics of this clause and ensure that your earnest money is refunded if this clause is executed.
