Proper Use of "Kick-Out" Language and MLS Status
Copyright (c) 2013, Deanna and Jim Gilbert
Use of the phrase "Kick-Out" is widely misunderstood. Agents and their clients are often confused.
The easiest way to remember this is that kick-out contingencies provide a way for a second buyer (offering more attractive terms in a back-up offer) to boot from the transaction, or "kick-out" the first buyer who used the contingency to get the property under contract.
This situation most commonly arises when the buyer's ability to purchase the property depends upon an significantly risky event external to the transaction. For example the buyer may need to sell another property, lease another property, win a lawsuit, or receive approval of a court or a trustee in order to proceed. The buyer who seeks to secure the right to purchase the subject property writes his offer to purchase contingent on the external event with kick-out language.
A seller who ratifies a contract with a kick-out contingency does so because they have no other offers with terms nearly as attractive.
The kick-out language allows the seller to continue marketing the property and reviewing back-up offers that result from this activity. In the event of the seller choosing a back-up offer (presumably at better terms, or without a kick-out contingency of its own) the seller may give the original buyer notice to remove their contingency within a stated period of time (often 72 hours) or stand aside from - be "kicked-out" of - the contract so that the seller can take the newer, more attractive offer.
There are many other kinds of contingencies. Kick-out language is not used for financing, appraisal, home inspection, radon inspection, well inspection, septic inspection, termite inspection, or project approval contingencies on the buyer-side.
Kick-out language is also not used for the seller side contingency in a potential short sale which is the approval of the seller's existing lender(s). That is a short sale contingency. A short sale under contract pending approval of the seller's lenders is properly placed in Contingent, No-Kickout status in the MLS.
Kick-out is not a sloppy description for a transaction failing over a contingency. Transactions never kick-out. The seller's bank doesn't kick-out a short sale if/when they reject it.ick-out is not a sloppy description for a transaction failing over a contingency. Kick-out is a specific technical term referring to buyer 2 ejecting buyer 1 from a transaction contingent on buyer 1 getting something done that requires participation by those not involved in the transaction (approval of estate executor, approval of trustee, approval of a court, sale of another piece of property, collection of a substantial judgment from an unreliable payee, etc.).
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