What is a kick-out clause in real estate?

In the ever-evolving world of real estate, both buyers and sellers seek to navigate transactions smoothly and effectively. One important tool that helps manage contingent offers is the kick-out clause in real estate. This provision in real estate contracts can provide sellers with flexibility and ensure buyers are serious about their offers. Let’s explore what a kick-out clause is, how it works, and its implications for home sales.

What is a kick-out clause?

A kick-out clause is a provision in a real estate sales contract that allows the seller to continue to market the house on the market and accept backup offers, even after they have accepted an offer contingent on the buyer meeting certain conditions. These conditions that must be met typically include the sale of the buyer’s current home.

Why are kick-out clauses important?

Kick-out clauses are crucial for both buyers and sellers. For sellers, it means not having to halt all marketing efforts and risk missing out on other opportunities. For buyers, it means having the chance to make an offer while still working on selling their current home, albeit with the understanding that they must act quickly if another offer comes in.

What is an example of a kick-out clause?

When a seller receives a contingent offer, they may include a kick-out clause in the contract. This clause ensures that the seller can continue to show the property to other potential buyers and keep the house on the market. If another offer comes in, the seller can notify the first buyer, giving them a specified period, usually 48 to 72 hours, to either remove the contingency or withdraw their offer.

For example, imagine a potential buyer makes an offer on a property contingent on selling their existing home within 60 days. The seller, wanting to keep their options open, includes a 72-hour kick-out clause in the sales contract. During this period, the seller continues to market the home. If a new offer is made, the seller will notify the first buyer, who must then decide whether to proceed by removing the contingency or step aside for the new offer.

The kick-out clause in Florida real estate

In competitive markets like Florida, the kick-out clause is particularly useful. Real estate agents often advise sellers to include this clause to maintain flexibility. By continuing to show the property and considering backup offers, sellers can avoid being locked into potentially lengthy contingent deals.

What is the out clause in a contract?

An out clause, or escape clause, is another term often encountered in real estate contracts. This clause allows either party to terminate the contract under specific conditions without facing penalties. Out clauses are vital for managing contingencies and ensuring that all parties have an exit strategy if things don’t go as planned.

Examples of out clauses

• Inspection contingency. Allows the buyer to terminate the contract if the property inspection reveals significant issues.
• Financing contingency. Permits the buyer to withdraw from the contract if they are unable to secure financing.
• Sale of current home contingency. Allows the buyer to cancel the contract if they cannot sell their existing home by a specified date.
• Force majeure clause. Provides an out for either party if extraordinary events (e.g., natural disasters, war) prevent the fulfillment of the contract.

Bottom line

Kick-out clauses provide a balanced approach to managing contingent offers in real estate transactions. They allow sellers to keep their options open and continue to market their property, while buyers can secure a home without immediate financial strain. Real estate agents often recommend these clauses to ensure smooth and flexible transactions, benefiting both parties involved. Understanding how kick-out clauses work and their role in real estate contracts can greatly enhance your buying or selling experience.

Whether you are a buyer looking to make a contingent offer or a seller wanting to keep your house on the market, knowing the ins and outs of kick-out clauses can help you navigate the complexities of home sales effectively.

Written by Vanessa Gallanti. August 6, 2024

Enthusiast about planning, project management, construction materials and technology, and construction. A civil engineer from Los Andes University and a content writer for Kukun.