What happens if the seller exercises the kick out clause?
What is a Kick Out Clause in Real Estate?
When buying or selling a property, there are several terms and conditions that need to be agreed upon by both parties. One of these terms is the kick out clause. A kick out clause is a provision in a real estate contract that allows the seller to continue marketing their property even after accepting an offer from a buyer.
How Does a Kick Out Clause Work?
When a seller accepts an offer from a buyer, they typically sign a contract that outlines the terms of the sale. However, if the seller receives another offer from a different buyer, they can activate the kick out clause. This means that the seller can give the first buyer a specified amount of time (usually 48-72 hours) to remove any contingencies or conditions from their offer. If the first buyer fails to do so, the seller can then accept the second offer and move forward with that buyer instead.
Why Do Sellers Use Kick Out Clauses?
Sellers use kick out clauses to protect themselves from being tied up in a contract with a buyer who may not be able to follow through with the purchase. For example, if the first buyer’s financing falls through or they are unable to sell their own property, the seller would be stuck waiting for them to resolve these issues before they can move on to another buyer. By including a kick out clause, the seller can continue marketing their property and potentially find a more reliable buyer.
What Are the Pros and Cons of Kick Out Clauses?
- Allows sellers to continue marketing their property and potentially find a better offer
- Protects sellers from being tied up in a contract with an unreliable buyer
- Can create uncertainty for the first buyer who may have already invested time and money into the purchase process
- May discourage some buyers from making an offer if they know there is a kick out clause in place
A kick out clause can be a useful tool for sellers who want to protect themselves from being tied up in a contract with an unreliable buyer. However, it can also create uncertainty for the first buyer and potentially discourage some buyers from making an offer. It’s important for both buyers and sellers to understand the implications of a kick out clause before agreeing to it.
Frequently Asked Questions
Can a kick out clause be added after the contract has been signed?
No, both parties must agree to the kick out clause before signing the contract.
Can the first buyer still back out even if they remove their contingencies?
Yes, the first buyer can still back out of the contract even if they remove their contingencies. However, if they do so, the seller can then move forward with the second offer.
Can a kick out clause be used in all real estate transactions?
No, kick out clauses are not common in all real estate transactions. They are typically used in situations where there is high demand for the property or when the seller wants to protect themselves from an unreliable buyer.