Kick Out Clause, has a nice ring to it, doesn't it?
Not really, although while its general verbiage seems threatening, this particular real estate clause can allow a seller a bit of flexibility when accepting a contingent offer. What about the buyer? Is it good for them? That all depends on the terms, current market, home demand, pricing and overall timing and good luck.
As we have discussed in previous topics most people need to sell their current residence in order to qualify to purchase a new home. If a buyer puts an offer in on a home they wish to purchase but their home is not yet sold, this is called a contingent offer. When the box is checked indicating a contingent offer it lets the seller know that there is additional risk and time with this particular offer.
Let's get to the real topic: Kick Out Clause. The kick out clause allows the seller to keep marketing their home while under contract on the contingent offer. If another offer comes in that the seller likes better, they can terminate the previous contract with original buyers. While this can seem a bit harsh, the original buyers do not have to agree to this, but that means they aren’t under contract on the home. Remember above where I mentioned if this was good for the buyer or seller, now you can see how it is completely circumstantial. If the buyer really really wants this home they will take the risk and hope no other offers come in. If the seller could lose out on both offers if the situation is not handled with care and consideration for all parties. Understandably, though, the ability to continue to market the home and accept other offers is pretty appealing.
Although the kick out clause has advantages to both sides, there are some drawbacks as well.
The main drawback being risk for all parties involved. Those risk factors could be that:
- The sellers (if they accept the offer) would stop marketing their home (losing potential other buyers) for sale and now be under contract,
- The buyers home may not sell, there may be issues that make the transaction take longer than the typical 30-45 day closing, etc.
- If the seller receives an offer from a second buyer, it may take as long as five to seven days before the seller will know for sure that the first contract is cancelled. The second buyer may not be willing to wait for that time to pass and may look to find another house without a home sale contingency. This may limit the seller's ability to find second buyers
Is this a negotiating tactic that is right for you? Again, this is completely situational and the market is a huge factor when making a decision like this.
Looking to understand more about contingent offers? Check this out
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