Sometimes selling a home can be challenging, and other times it is a breeze. Over the last few years, it has been an extreme seller’s market characterized by bidding wars and homes selling significantly over asking prices.
It’s possible that things may be changing a bit. In some areas of the country, home inventory is rising. Mortgage interest rates have also shot up, making it more expensive for buyers to purchase.
Eventually, it is possible that real estate markets will become more balanced. When that happens, there will be different types of real estate terms that will pop up.
One such real estate term you may encounter is a kick-out clause. There are many benefits to having a kick out clause in your home sale agreement.
By having this clause, you can protect yourself from any unforeseen events that could affect your home sale. It also potentially gives you the opportunity to move onto another buyer. Let’s have a look.
What is a kick-out clause?
A kick-out clause is a provision in a home sale agreement that allows you to terminate the agreement if certain conditions are met.
The common situation when a kick-out clause will be used is when a buyer has a home to sell. Rather than asking for a home sale contingency, which is rarely accepted, a buyer will try for a kick-out clause instead.
The offer will be negotiated with price and other terms being accepted by both parties. However, with an active kick-out clause, the seller will have the option to terminate the sale if the home sale contingency clause is not removed.
A kick-out clause is very similar to a right of first refusal.
Most kick-out clauses will state that if another offer to purchase comes in from a different buyer, the seller or their real estate agent will notify the current buyer.
The buyer will then have a specified amount of time to decide whether to move forward or not. The typical time period for making a decision is 24 to 72 hours.
The benefits of a kick-out clause for sellers
With a kick-out clause, the seller has the best of both worlds. They have a buyer on the hook as well as the ability to continue looking for something better.
For example, if someone comes along with a higher offer, they can notify the buyer. If the buyer does not have the financial capability of purchasing the home without selling their current property, the contract may state that the seller can terminate.
When the buyer does have the financial qualifications necessary to buy without selling their existing home, they would need to remove their home sale contingency.
The only con of a kick-out clause for a seller is the period of time they have to wait when notifying the buyer.
If the second buyer has a time constraint and needs to make a decision, the seller could lose out on a better buyer.
The benefits of a kick-out clause for buyers
The biggest benefit to a homebuyer is that they will have been able to pre-negotiate the terms of their purchase.
Doing so can be helpful because the buyer will better equipped to make decisions on their own home.
If you know that you’ve purchased a home for X amount of dollars, that’s better than the unknown.
Sometimes a seller will sell for less than believed they would, creating a situation where they spend less on their purchase.
Final thoughts
In most circumstances, a kick-out clause is a win-win for both parties. You will tend to see kick-out clauses far more frequently in buyer’s markets versus seller’s markets.
In a seller’s real estate market, this kind of condition is rarely necessary. In a buyer’s market, selling a home is more challenging.
Whether you are a buyer or seller, you can ask your real estate agent about local customs as they pertain to these clauses.
Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 35 years. Bill is the owner and founder of Maximum Real Estate Exposure. For the past decade, he has been one of the top RE/MAX REALTORS® in New England.
