How a "Kick-Out Clause" Can Protect Sellers

April 28, 2016


Your house is on the market, and a buyer puts in an attractive offer at the price you were hoping to get. Everything seems perfect, but then you’re told that the only way the purchase will go through is if the buyers sell their home first.

It’s a gamble to continue to entertain this offer, since you’ll now have to take your home off the market while the purchase agreement is conditional. Now you have to wait until the buyers’ home sells, and that’s not even guaranteed. Even if the house does sell, who knows how long that will take.

Protecting Yourself From Contingent Contracts

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When buyers present an offer to purchase to sellers, they can include a contingency for the sale of their own home, which is referred to as a “contingent contract.” In layman’s terms, this means that if the buyers are unable to sell their house, the contract to purchase your property becomes null and void, and the buyers can basically walk away from the deal without penalty.

If that happens, you’re left with no buyer, and are right back at square one. Meanwhile, during the time you waited for the buyers to sell their home, you probably missed a bunch of chances to attract other buyers. After all, your home had to be taken off the market while the buyers dealt with the sale of their own home. It’s not the most ideal situation to be in as a seller.

So how do you get yourself out of this dilemma?

The solution is a “kick-out clause.” Nobody wants to sign a contract that’s contingent on the buyers’ ability to sell their own property. Unfortunately, not everyone can afford to buy a new house until their current home is sold. But that shouldn’t have to put you in a problematic position.

A kick-out clause can protect you from this situation. This compromise allows you to accept the contingency contract, as long as you are still allowed to keep your home on the market. If another buyer swoops in and expresses interest in putting in an offer on your home, the original buyers are given a specific amount of time – typically 72 hours – to remove the contingency from the contract, or walk away from the deal.

Use Careful Language in Your Contract

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The kick-out clause needs to be carefully worded. If the buyers decide to eliminate the sale contingency during the allotted 72-hour period, they can still back out of the deal if they can’t get the necessary financing to buy your house. The majority of typical purchase agreements also include another condition based on the buyers’ ability to get approved for a mortgage.

These conditions can put both you and the buyer in a precarious situation. If the buyers take the sale contingency out of the contract, but still have a financing condition, there’s a chance that the lender won’t commit to provide them with a loan unless they sell their house first.

What this all means is that the buyers still have a way out, making the contract null and void. At least you still have the opportunity to continue to market your home in case the initial buyers back out, making room for another buyer to enter the scene.

Compromising With the Buyers

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For you – the sellers – a kick-out clause is totally reasonable and acceptable. After all, why should you forego the chance of getting an offer from another buyer if the original buyers are taking forever to sell their home? Even though you’ve signed a conditional contract, you can still keep your home on the market, which is only fair. You absolutely have the right to continue to show your house to other potential buyers and accept back-up purchase agreements if you’re offered any.

As the seller, you should also ask the buy to start marketing their home right away. Your contract needs to use very specific language to explain that if the buyers don’t put their home on the market within a reasonable amount of time, you have the right to deem the contract void and look for another purchaser who won’t insist on a contingent contract.

Obviously the best-case scenario would be if the buyers sell their home quickly, making the purchase agreement firm and taking the task of marketing your house off your plate.

Kick-out clauses have benefits for both parties. The buyers are given the opportunity to find a home and put it under contract while trying to sell their current property. The sellers can continue to show their house to other potential purchasers in case the initial buyers can’t sell their home.

A kick-out clause is definitely a useful tool in situations where a purchaser has a property to sell, and the sellers don’t want to tie up the sale of their home while the buyer tries to sell their current house. Since this contingency is meant to protect you, it’s got to be worded in a very tactful and careful way. Luckily, experienced real estate agents are highly skilled in this area, and can help you draft up a contract that will allow you to continue to market your property and never lose out on an opportunity to sell.