When purchasing a brand new home, a buyer could make an offer that's contingent upon selling their present home. The contract proceeds as normal with regards to home inspections and applying for loans. Nevertheless, till the house owner sells their current home, they're under no obligation to buy the house they've a contract on. In case the Seller receives another offer, he can't accept the offer till the first buyer walks away. This is achieved by what is known in the industry as a kick out clause. This clause provides the seller with the means to kick out a Purchaser's contract.
Michael and Sally Seller have a home priced at $495, 000. Michael and Sally Seller enter into a contract with Bob Buyer for $490, 000. Bob needs to sell his own home, and therefore requests a contingency clause to defend himself. Michael and Sally agree and their home is technically under contract. Nevertheless, until Bob sells his home, nothing may take place. Brenda buyer comes along, and, assuming the kick out clause box in the MLS did not scare away Brenda or her agent, she sees the house and falls in love. She offers $465, 000- or $25, 000 less than Bob Has an offer contingent only upon the house inspection.
Michael and Sally can't accept the offer. Due to the kick out clause, they must first go back to Bob and give him the ultimatum. Walk away or Remove the contingency and proceed to closing. More often than not, Bob Buyer will walk away. Why? Since he cannot afford to go and close with two houses. Therefore, they've accumulated nothing by putting in a contract. In fact, it's cost them in 4 places. Since his offer was contingent on the sale of another home, Bob's offer wasn't quite strong to begin with. He was unable to negotiate a good price on the property, and in the end had a contract that would have him pay $25, 000 more than he could have gotten had he waited until he sold his house.
Simply because there's a kick out clause, does not mean that Bob was able to avoid the cost of the inspection. He'd to go through a home examination and paid for it. Since he did not get the home, that cash is wasted. Bob is obliged by the contract to make full application with a mortgage lender. Including paying for an appraisal. The bank has to order it. Potentially, Bob could have to pay for one or more appraisal. If Bob sells his house in 4 months, and does get to go to closing, the bank will require an updated appraisal to show no downturn in the market. Bob and his family had started moving in their new home mentally.