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How can a kick-out clause help homebuyers?

On Behalf of | Nov 13, 2023 | Real Estate Law |

If you have found a property that meets all of your hopes for a home, your real estate contract should work toward your goal of buying it. Since some provisions in a purchase agreement can favor the seller over the buyer, you should know if contract terms such as a kick-out clause could ultimately cost you the home.

Many sellers feel comfortable including a kick-out clause in a contract. Still, this kind of provision is not always to the detriment of the buyer.

How kick-out clauses work

A kick-out clause gives a seller the right to continue marketing the home while it is under contract. Kick-out clauses often appear when a buyer’s offers include contingencies that might prevent the sale. For example, a person may need to sell a current home first or have the new home inspected. Sellers worry these contingencies will stop the deal, so they keep looking for backup buyers.

In the event a better deal comes along, the seller notifies the original buyer, who may explore different options to counter the new offer. The first buyer can remove contingencies included with the initial offer or raise the bid. If the buyer cannot or will not try to produce a better deal, the seller can “kick out” the first buyer and move forward with the new deal instead.

When kick-out clauses benefit homebuyers

While a kick-out provision helps shield sellers against unreliable buyers, this language can also help buyers. If you have concerns about losing your earnest money deposit, a kick-out clause provides for you to get your deposit back if the seller goes with another buyer.

Additionally, you get a first right of refusal on a higher offer. You do not have to worry about another buyer exceeding your bid without you having an opportunity to counter the offer. Still, kick-out provisions can vary in time length, so you might end up with less than a day to consider raising your bid.

According to the National Association of Realtors, 76% of closed sales recent to 2020 included contingencies, so no buyer should discard them hastily to fulfill a kick-out clause. Examine contract language early to determine if the terms truly work in your interests.