Understanding the Kick Out Clause in Real Estate

Understanding the Kick Out Clause in Real Estate

The kick out clause is a real estate contingency that offers flexibility for sellers while protecting buyers. Continue reading below to learn more.

When navigating the world of real estate, one might come across the term “kick-out contingency”. This lesser-known, yet crucial provision can be a game-changer for both buyers and sellers. In this article, we’ll dive into the mechanics of the kick-out contingency, its advantages, and potential drawbacks.

What is a Kick Out Clause?

A kick-out clause is a contingency in a real estate contract that allows a seller to continue marketing their property even after accepting an offer from a buyer, provided that offer comes with certain contingencies. The most common scenario involves a buyer who needs to sell their existing home before purchasing a new one, or an appraisal contingency. If the seller receives a non-contingent or more attractive offer from another buyer during this period, they can “kick out” the initial buyer, given they provide proper notice and allow the first buyer a stipulated time (typically 72 hours) to remove their contingencies and proceed with the purchase.

Florida Kick Out Clause Language

“Seller will have the right to continue to show the Property and solicit and enter into bona fide back-up purchase contracts with third parties that are subject to the termination of this primary Contract. Upon entering into a back-up contract, Seller will give Buyer a copy of the back-up contract with the third parties’ identification and purchase price information obliterated.

To continue with this primary Contract, Buyer must make an additional deposit of $_______________ to Escrow Agent, within 3 days from receipt of the back-up contract. By giving the additional deposit to Escrow Agent within 3 days, Buyer waive all contingencies for financing and sale of Buyer’s property and the parties will close on Closing Date. The additional deposit will be credited to Buyer at Closing.

If Buyer fails to timely make the additional deposit, then this primary Contract shall terminate and Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all further obligations under this Contract.”

Insertion of the Clause

When a buyer makes an offer on a property in Florida and needs to sell their current home to fund the purchase, they can include a contingency in their offer regarding the sale of their existing property. To protect their interests and not tie down the property indefinitely, sellers might agree to this contingency but with a kick-out clause attached.

Your real estate agent should have access to a form that is used as an addendum to the purchase & sales contract.  In Florida we use the CR-6 – Kick Out Clause Rider X (Rev 10_21)“.

Seller’s Right to Continue Marketing

With a kick-out contingency in place, the seller retains the right to continue marketing their property and accepting offers from other potential buyers, even after accepting the contingent offer.

Right of First Refusal

If the seller receives another offer that they want to accept (typically an offer without the sale-of-home contingency or a more attractive offer), the seller can notify the initial buyer of this new offer. The kick-out clause would generally give the first buyer a specified period (e.g., 72 hours) to either:

  • Remove their sale-of-home contingency and move forward with the purchase, showing they have the means to complete the purchase without selling their existing home.
  • Fail to remove all contingencies from the offer and consequently allow the deal to terminate, allowing the seller to accept the new offer.

Pros of the Kick Out Clause

  1. Flexibility for Sellers: The primary benefit of including a kick-out contingency in the agreement is that it offers flexibility for the seller. Instead of waiting indefinitely for the initial buyer’s home to sell, they can entertain other offers. If a better deal comes along, they aren’t bound to the contingent offer.
  2. Protection for Buyers: For buyers who need to sell their home first, this contingency provides a way to secure their dream property without committing immediately. The seller’s agreement to this clause gives the buyer time to sell their existing property with the peace of mind that their potential new home is under contract.
  3. Potential for Better Offers: Since the seller continues to market the property, there’s a chance of receiving a higher, non-contingent offer. This keeps the competition alive, potentially maximizing the selling price.

Cons of the Kick Out Clause

  1. Potential Loss for Initial Buyers: The most apparent drawback is for the buyer with the contingent offer. They could lose their desired property if another non-contingent offer comes in and they’re unable to fulfill their own contingency in time.
  2. Complicated Negotiations: Kick-out contingencies can make the negotiation process more intricate. Buyers might try to negotiate for shorter kick-out periods, while sellers might want longer ones. This can add another layer of complexity to the buying and selling process.
  3. Market Perception: Some potential buyers may see a property with an active kick-out contingency as “somewhat sold,” which might deter them from viewing or bidding on it. It could potentially limit the number of fresh offers coming in.
  4. Emotional Strain: The uncertainty surrounding the use of a kick-out clause can be stressful for both buyers and sellers. Sellers may worry about missing out on a more straightforward sale, and buyers with the contingency live with the fear of being ‘kicked out’ if a better offer comes along.

Final Thoughts on the Kick Out Clause

In conclusion, while the kick-out clause offers both advantages and disadvantages, its appropriateness largely depends on the specific needs and circumstances of the buyers and sellers involved. Like any real estate decision, it’s crucial to work with knowledgeable professionals who can provide guidance tailored to one’s unique situation.

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