What is a contingent offer with kick out clause in a real estate transaction?

I recently had one of my clients in Methuen ask me what a kick out clause is so I got to thinking that others may have the same question.  In simply every day language, a kick out clause is a clause in a real estate sales contract that allows the seller to void the agreement if another offer comes in prior to closing the original agreement.  So you may ask, why would anyone want to put an offer on a home that is for sale with a kick out clause provision?  Here is one example where this could come in handy.

Let’s say you found a home that you would like to purchase, but you have an existing home that you need to sell first.  You currently don’t have a buyer lined up for your home, but you would like to start negotiating a deal with the seller for the home that you are interested in buying.  Your buyer agent is going to suggest that you put a home sale contingency in your offer.  This means that your offer is contingent (depends on) you selling your home first.  Why would you want to do this?  Well if you are not able to sell your home you probably won’t be able to close on the home you are interested in buying and the deal would be in jeopardy along with your cash deposits (unless of course you can secure financing for a second home and can afford to own both homes at the same time).

Rather than waiting to negotiate the home purchase, you could make your offer to the seller with your home sale contingency, but make the offer contingent with kick out clause in place so that the seller is able to void your offer and accept another offer if one comes along while you are waiting to sell your existing home.  The seller may be more agreeable to this arrangement as they would probably be reluctant to accept an offer on their home with a home sale contingency if the offer was contingent with no kick out clause.  A contingency with a kick out clause usually also has a time frame associated with it.  For example, the seller might give the buyer a 48 hour notice on the kick out giving the buyer a chance to move forward without the contingency or step aside.

I hope that I explained this well!  Let me know if you have any questions.

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3 Responses to “What is a contingent offer with kick out clause in a real estate transaction?”

  1. Well, if that is the reason for it, I suppose it is better than nothing… Maybe. In California, we do things a little differently (I can hear you all laughing right now!).

    I think contingent offers OF ANY KIND are to be avoided. Even if your client absolutely must have that exact home, they will have to give up most of their negotiating power to get it.

    I say, put your home on the market, price it TO SELL, market the devil out of it – then go find your dream home. In this kind of market, it is the ready, willing, and able Buyer who drives the train!

    April 8, 2011 at 6:49 PM Reply
    • Hi Robert, thank you for your comment. I think that a lot of things are done differently in California! I agree with you though, non contingent offers are much stronger offers than contingent offers. The trick for someone wanting to sell a home and buy another is if the delicate balance of trying to line up the timing of both transactions. If a seller can find temporary housing, selling their home without a contingency first is a great way to go. How is business going for you in Santa Cruz?

      April 8, 2011 at 8:33 PM Reply

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    […] on my blog site.  My most recent post was about the definition and comparison of a contract contingent with kick out clause versus a contingent with no kick out […]

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