A kick-out clause is a contingency in a property sale contract that causes the contract to expire if triggered. It allows the seller to continue marketing the property and accept a better offer, while giving the buyer a chance to meet the contingency. It can be beneficial for buyers and can be added along with other contingencies by a real estate agent.
A kick-out clause is a clause in a contract for the sale of property that establishes a contingency which, when triggered, causes the contract to expire or be terminated. If the buyer cannot meet the contingency, the contract will expire and the seller will switch to another buyer. If the buyer is able to meet the contingency, the contract is exercised and the sale proceeds. There are several contexts in which a kick-out clause may be used and it may not be the only contingency attached to the contract, depending on how the contract is structured.
In the classic example of how a kick-out clause might be used, a buyer might contract a home with an eventuality that states that their home must sell before the purchase can go through. This can be used in markets where property prices are high and people cannot afford to buy a new home without selling their original home. For the seller, however, this presents an obvious problem, because sellers don’t want to sit around and wait for the buyer’s home to sell for the sale to go through.
With a kick-out clause, the seller accepts the contingency with the understanding that the house will continue to be marketed. If the seller receives another offer on the home, the buyer may be given a period such as 72 hours in which to respond. The buyer can either agree to go ahead with the sale or let the contract expire and lose the home. This provides flexibility for the seller, allowing him to get a good offer under the contract while still marketing the home should a better offer come up.
Putting a home under contract with a kick-out clause can be beneficial to buyers because it means they have a contract up and ready to go when their homes sell. This can reduce the risk of ending up in a situation where the home is sold but no replacement is expected, forcing you to stay in a rental or hotel until a home becomes available for purchase.
A real estate agent can add a kick-out clause to a contract along with other contingencies. Another common contingency is that the sale must be contingent on financing. This ensures that the buyer is not forced to follow the contract even if financing is not available. Likewise, people may reserve the right to withdraw from a contract or renegotiate it if property inspections reveal fundamental defects in the home or property.
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