Real estate agents will put common contingencies, such as the “kick-out” clause, in some sales contracts to protect the seller and purchaser. 

What is the Kick-Out clause?

The kick-out clause is a contingency that real estate professionals use when the purchaser must sell their own home in order to buy the seller’s home.  What happens if the purchaser signs the sales contract but can’t sell their own home?  Should the purchaser lose the earnest money?  Will the seller have to start the process over again to sell their home?  These issues can be effectively resolved with the kick-out clause. 

Here’s how it works

Seller “A” wants to sell house “A”.  Seller “A” receives an attractive offer to buy house “A” from Buyer “B”.  Buyer “B” needs to sell their own home (house “B”), to pay for Seller “A” ’s home.  Should Seller “A” accept “B” ’s offer, a special clause would be added to the sales contract which allows the buyer a specific amount of time to sell house “B”.  This time, called the home sale contingency period, may be 30-90 days.  While Buyer “B” is working at closing on house “B”, Seller “A” can continue marketing house “A” for sale.  If a second buyer is found, the seller could possibly “kick-out” the original buyer and cancel the contract.

If Buyer “B” successfully closes on house “B” within the home sale contingency period, “B” will be able to proceed with the sale of “A” ’s home.

If Buyer “B” is unsuccessful at closing on house “B”, the contract will be cancelled and any earnest money will be returned to “B”.

If Seller “A” obtains a better offer during the period, Seller “A” must notify “B”, in writing, of the new offer.  Buyer “B” will then have 72 hours to match the new offer and proceed with the closing.  If Buyer “B” declines the new terms, “B” can cancel the contract and get the earnest money refunded.

the upside

Though this practice may seem harsh, it can benefit both parties.

• The seller has the advantage of continuing the search for a new buyer in case the first buyer can’t close. 
• The buyer has the peace of mind of being able to cancel the contract if he/she is unable to sell the buyer’s home.

tHe downside

Of course, this practice does have its drawbacks. 

• While Seller “A” can continue to market house “A” during the home sale contingency period, Seller “A” must notify other potential buyers about the existing contract. 
• Other buyers may not be willing to consider the seller’s home knowing that there is a contract already in place. 
• The home sale contingency period will add extra time to the closing of the seller’s home even if the buyer is able to close on the buyer’s home. 
• Lastly, the buyer runs the risk of losing out on the seller’s home even though a sales contract is in place.  The buyer would then have to restart the home search.

the kick-out clause is an option

Purchasing and selling a home is rough!!  But a good real estate agent can address common issues by using various tools, including the kick-out clause.  The kick-out clause lets a buyer out of a contract when necessary.  It also allows a seller the chance to get a better deal even when a signed contract exists.  If you ever need to sell your home to buy a new home, fret not.  Know that you have options and a good real estate agent will help move the transaction forward.