(Article Source: Realty Biz News, pulled from a NAR newsletter)
What is a Kick-Out Clause?
A kick-out clause is language inserted into an offer to purchase real estate that says a seller can terminate the current agreement and move on to a different buyer if the current buyer does not remove specific contingencies.
Here are a few highlights from the article:
- The contingency that most often needs to be removed is the home sale clause. The kick-out clause allows the seller to “kick out” the first buyer should another buyer come forward. It can also be called an active kick-out clause in some circles.
- What happens with a kick-out clause? A kick-out clause will come into play when a new buyer comes forward and makes an offer on the property. The original buyer is given a chance to continue without a contingency–if they do not move forward, their earnest money is returned.
- How kick-out clauses help buyers. A kick-out clause lets a buyer pre-negotiate the terms a seller would be willing to accept. Having this information could be helpful to the buyer when it comes to negotiating the sale of their own place.
- The seller wins a kick-out clause. Even though a kick-out clause can be somewhat helpful to a buyer, the clear winner is the seller. It is a best of both worlds clause from a seller’s standpoint.
- Neutral and buyers’ markets. Sometimes a kick-out clause ends up working for both parties and sometimes it doesn’t. It is always worth considering as a fallback plan in markets that are neutral or tend to favor buyers.
To read the entire article, click here.