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When should a home seller use a kick-out clause?

On Behalf of | Nov 2, 2021 | Real Estate Law

Among the most complicated and uncertain residential real estate transactions are those where both the buyer and seller have commitments to other properties. Often, the buyer currently owns a home that they have to sell, and the seller is purchasing a new home. Their transaction depends on both of those other transactions proceeding as anticipated.

Say you’re selling your home, and you receive an offer from a potential buyer. Their offer is above your asking price and their funding is secure. However, they still have to sell their current home. Therefore, they ask for a clause in the contract that their purchase is contingent on the sale of their current residence.

As a seller, you’re concerned that they may not be able to purchase your home within a reasonable timeframe. Countless things could prevent them from selling their current home. It’s often wise for someone in that situation to include a kick-out clause.

What does a typical kick-out clause state?

A kick-out clause typically states that a seller is free to leave their home on the market while the buyer attempts to sell their home. If they get a better offer – perhaps one where the buyer can move in any time, they can “kick out” the original buyer.  However, they have to give the original buyers a period (typically around three days) to decide whether they want to proceed with the purchase or walk away from it. That original buyer gets back any earnest money they put down.

Contingency clauses in a sale contract can protect both buyers and sellers – particularly if they’re in a real estate market that is in flux and nothing is a sure thing. By not protecting yourself with these clauses, you can end up losing a lot of money or in a deal that’s not advantageous for you. That’s why it’s wise to have legal guidance when you’re engaging in such a significant transaction.