What Is a Kick-Out Clause in Real Estate?

A kick-out clause is a specific provision found within real estate contracts, particularly in scenarios involving contingent offers. This contractual term is designed to provide sellers with continued flexibility after accepting an initial offer that includes certain conditions. Its primary purpose is to allow a seller to entertain and potentially accept a more attractive offer, while simultaneously giving the original buyer an opportunity to proceed with their purchase under revised terms. This mechanism ensures that a seller is not indefinitely bound by a contingent contract if a more favorable opportunity arises.

Understanding Kick-Out Clauses

A kick-out clause is typically included when the first offer is contingent upon certain conditions, such as the buyer selling their current home. From the seller’s viewpoint, this clause prevents the property from being tied up indefinitely by a contingent offer. It allows them to seek more favorable or unconditional bids, providing protection if the housing market shifts or initial contingencies are prolonged.

For the buyer, a kick-out clause allows them to secure a desired property while they work to fulfill their own contingencies, such as selling their existing residence. Buyers enter into such agreements with the understanding that their offer is not completely firm and that competition remains possible. It is a pre-agreed term within the purchase agreement, not an arbitrary action by the seller.

Key Elements of a Kick-Out Clause

A kick-out clause specifies components governing its operation. A primary element is the notice period, which dictates the timeframe the original buyer has to respond once a kick-out notice is issued. This period commonly ranges from 24 to 72 hours, though it can be defined more precisely, such as by a specific business day and time.

Upon receiving a kick-out notice, the original buyer typically has two main response options. They can choose to remove their contingencies and proceed with the purchase, making their contract firm. Alternatively, the buyer can decide to terminate the contract, allowing them to walk away from the deal. The clause also outlines the specific conditions that permit a seller to activate it, most often the receipt of a bona fide “backup” offer that is either more favorable or non-contingent.

The kick-out clause directly interacts with the original buyer’s contingencies, such as a home sale contingency. It grants the seller the ability to compel the buyer to either waive their existing contingency or step aside from the transaction. This ensures that the seller can avoid prolonged uncertainty if a more immediate or less conditional offer becomes available.

The Process of Invoking a Kick-Out Clause

When a seller activates a kick-out clause, a specific sequence of actions ensures contract compliance. The process begins when the seller receives a new, usually more attractive or non-contingent, offer for the property. The seller then provides formal written notice to the original buyer, informing them of the new offer and adhering to the stipulated notice period.

Upon receiving this written notice, the original buyer must make a decision within the specified timeframe, typically 24 to 72 hours. The buyer’s choice is either to remove their contingencies, thereby making their contract firm, or to terminate the existing purchase agreement. If the buyer chooses to remove their contingencies, they commit to the purchase, and the seller is generally no longer able to accept the new offer.

Should the original buyer choose to terminate the contract, the agreement is dissolved, and any earnest money paid is typically returned to the buyer. This action allows the seller to proceed with the new offer, moving forward with the second buyer. Throughout this process, strict adherence to the contract’s terms and formal written documentation are important for all parties, ensuring legal clarity and protection.