Usually a buyer with a home to sell will add the contingency that their home has to sell first prior to completing the purchase of a new home. When adding this to an offer, the buyer usually sets a time frame for as little as 30 days to as long as 90 days, depending on the housing market, for their house to sell. The seller has to agree to these terms when accepting the offer because if the buyer cannot sell their home within that time frame, the deal can be terminated and the buyer retains their deposit.
This is a great contingency for the buyer, but not so great for the seller. Why? Well, during the wait period, the house is under contract and the seller cannot entertain other offers. So if the deal falls through, the seller has wasted 30 – 90 days in which they could have sold their home. Now they will need to re-list the house and search for another buyer.
In order for the seller not to get stuck in a situation like this, the seller’s attorney can add a “kick out” clause to the contract.
A kick out clause allows the seller to continue showing the house for sale and to “kick out” of the contract with a buyer if the seller receives an offer from another buyer without a home sale contingency.
Basically the kick out clause allows the seller to keep options open while the buyer tries to sell their home. Here’s how it works. A buyer asks a seller for a 30 – 90 day home sale contingency period, the seller agrees but with a kick out clause. So the seller keeps the house on the market during the 30 – 90 day waiting period. If during this time the seller receives another offer with no contingencies, the seller first has to notify the original buyer that there is another offer on the house. The original buyer will have a set period of time to counter or respond. Meaning they can decide to proceed with the sale without selling their own house or cancel the contract.
If the first buyer decides to buy the house, he or she is usually given a short time period to close on the house – typically 30 – 45 days. If the buyer is able to sell their home within the home sale contingency period, the original contract is still in place and the purchase continues.
The kick out clause has its disadvantages as well. It could take up to seven days before the seller hears from the original buyer on whether or not they will buy the house or cancel the contract. The second buyer may not be willing to wait that long for an answer, thus the seller loses out on the second deal.
However, it is a useful tool when selling a house and quite honestly, always be a part of any contract that has a home sale contingency period.