What is a "Kick-Out" Clause in Real Estate?


This is becoming a very popular procedure in today's real estate transactions. This clause typically is instated when a seller receives a contingent offer from a buyer and the seller wants to continue to market their house.

When a buyer wants to purchase a property but needs to sell their own house first, they usually submit a contingent offer. The sale of the first house can only happen with the sale of the second house. But, most often homeowners don't want to take the listing off of the market for an indefinite amount of time waiting for the buyer to sell their house. This is where a "kick out" clause comes into play. Under this arrangement, the sellers will stay in the contract that will accept a contingent offer but continue to market the house. The house will be still active and available to accept other offers. If another qualified buyer makes an offer on the house, the seller will give the current purchaser a certain amount of time to remove the contingency. If they cannot, they will have to exercise the contingency and decide not to purchase the new property. Sellers will usually give buyers anywhere from 3 to 6 days to decide whether or not they're going to remove the contingency or terminate the transaction.

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These classes must be carefully drafted.If the first buyers decide to delete this a contingency they may still be able to get out of the original contract if they cannot get financing. Obviously, financing has to go through for the buyer to purchase another property with the sale of their own. This can create a dilemma for both parties.

If the buyers remove the sale contingency but still have a financing contingency in place, the lender will not give a binding loan commitment to the buyer unless they sell their house first. It really is a which came first, the sale of the property or the purchase of a property? At the very least, sellers should include contract wording to protect both buyer and seller with a "kick out" clause. Under this type of arrangement, the buyer has the right to delete the contingency and follow through on the original purchase, but, the buyers must demonstrate that they are financially able to qualify for the loan. Usually one cannot happen without the other.

This is usually an acceptable arrangement for most sellers. Sellers can sign a contract and if the buyer's home sells then they have a deal. If the buyer cannot sell their property or remove the contingency, the sellers can at least continue to list the property and accept other offers. It's only reasonable; buyer should not expect the seller to sit on their property, waiting for the buyer to sell their own. Sellers, in turn, should also expect the buyers to immediately market and list their own property so that the entire transaction and simultaneous closings can happen in a timely manner.

If you're looking to sell your home in Palm Desert or surrounding areas give us a call. We can talk through the sometimes confusing legal jargon that comes along with a real estate transaction and answer any questions you might have about the loan process, buying or selling.

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