What is a Kick-Out Clause When Selling a House?

Real estate contracts can feel like a chess match, with each move carefully planned to protect both buyers and sellers. One particularly strategic move that often comes into play is the kick-out clause - a powerful tool that can shift the balance of power in property transactions.

Kick-Out Clause: A kick-out clause is a provision in a real estate contract that allows sellers to continue marketing their property while under contract with a buyer who has contingencies. If the seller receives a better offer, they can give the original buyer a specified timeframe to either remove their contingencies or terminate the contract.

Understanding the Kick-Out Clause Basics

You'll most often see kick-out clauses pop up in competitive markets where sellers want to maintain their advantage. These clauses make perfect sense in hot neighborhoods where multiple offers are common, or when a buyer's offer includes contingencies that might make the deal shaky.

The nuts and bolts of a kick-out clause include three main parts:

• The right to keep showing the house and accepting offers

• A set time period (usually 48-72 hours) for the original buyer to make a decision

• Clear rules about how the seller must notify the buyer of competing offers

Benefits and Risks

For sellers, kick-out clauses are like having a safety net. They can accept a contingent offer while keeping their options open. If a stronger offer comes along, they're not stuck waiting for the first buyer to work through their contingencies.

But buyers, here's what you need to watch out for:

• You might need to make quick decisions about removing contingencies

• You could spend money on inspections and then lose the house

• Rush fees for expedited services might increase your costs

Common Contingencies That Trigger Kick-Out Clauses

The most frequent contingencies that lead to kick-out clauses are:

• Home Sale Contingency: The buyer needs to sell their current home first

• Financing Contingency: The buyer needs to secure a mortgage

• Inspection Contingency: The property must pass various inspections

Real-World Applications

Picture this scenario: A seller accepts an offer from a buyer who needs to sell their current home. The seller includes a kick-out clause. Two weeks later, another buyer makes a higher, non-contingent offer. The seller can now give the first buyer notice to either remove their home sale contingency or walk away.

Smart negotiation often involves:

• Setting reasonable timeframes that work for both parties

• Being clear about what constitutes a "better" offer

Common Misconceptions

Let's clear up some confusion about kick-out clauses:

• They don't automatically favor sellers - they can backfire if buyers are scared away

• Buyers can use them to their advantage by negotiating better terms

• They must follow state and local real estate laws

Related Real Estate Concepts

Kick-out clauses work hand-in-hand with other contract provisions:

• Contingent offers: The foundation for kick-out clauses

• Right of first refusal: Similar but different protection for sellers

• Multiple offer strategies: Tools for managing competing bids

Practical Considerations

Success with kick-out clauses requires:

• Clear timelines for all parties

• Proper documentation of all communications

• Open channels between agents, buyers, and sellers

Making Your Move

Kick-out clauses can be valuable tools in real estate transactions, but they need careful handling. Bellhaven Real Estate's agents can guide you through the complexities of these contract provisions. Contact us to make sure your next real estate deal includes the right protections for your situation.