What Is a Kick Out in Real Estate?

A kick-out clause is a specific provision often included in real estate purchase agreements. This contractual term allows a seller to accept an offer from a primary buyer while retaining the ability to continue marketing their property to other potential purchasers. Its purpose is to provide flexibility for sellers when initial offers contain conditions that could delay or prevent closing.

Understanding the Kick-Out Clause

A kick-out clause, sometimes referred to as a “right to continue marketing” clause, is a contractual provision that grants a property seller the right to keep their home on the market even after accepting a contingent offer. While a property is under contract with a primary buyer, the seller can still solicit and potentially accept a more favorable, backup offer. The clause typically specifies a notice period, commonly ranging from 24 to 72 hours, during which the initial buyer must decide how to proceed if a new offer emerges. It functions as a seller’s contingency, allowing them to avoid being tied to a contract that might not close.

The core component of this clause is the seller’s ability to “kick out” the first buyer if a superior offer materializes. A “superior” offer typically refers to one with fewer or no contingencies, a higher purchase price, or more favorable terms, such as a cash offer. It provides a structured mechanism for managing potential delays associated with contingent sales.

When a Kick-Out Clause is Used

Sellers frequently incorporate a kick-out clause into a real estate contract when the primary buyer’s offer includes a home sale contingency. This common contingency means the buyer’s purchase of the new home is dependent on the successful sale of their current residence. Such a situation can introduce significant uncertainty and prolonged waiting periods for the seller. The kick-out clause mitigates this risk by preventing the seller’s property from being completely off the market during this contingent period.

This clause offers a strategic advantage, allowing sellers to accept an offer that might otherwise be less appealing due to its inherent conditions. It ensures the seller has options if the primary buyer’s home does not sell within the expected timeframe. By maintaining market exposure, the seller can continue to attract other potential buyers, reducing the financial vulnerability associated with a delayed or failed transaction.

How a Kick-Out Clause Functions

When a seller has a kick-out clause in their accepted contract and subsequently receives a new, more attractive offer, a specific sequence of actions unfolds. The seller must formally notify the primary buyer in writing about the new offer. This notification typically initiates a predetermined response period for the primary buyer, commonly 24, 48, or 72 hours. During this window, the primary buyer faces a decision point.

The primary buyer usually has two main options: either remove their contingencies and commit to proceeding with the purchase, or allow the contract to terminate. If the primary buyer chooses to remove their contingencies, such as a home sale contingency, their contract becomes firm and binding. This signifies their commitment to the purchase, often requiring them to demonstrate financial readiness to close the deal without the previous conditions.

Conversely, if the primary buyer does not remove their contingencies within the specified notice period or fails to respond, their initial contract terminates. In this scenario, any earnest money deposit made by the primary buyer is typically returned to them, as the termination occurs due to the terms of the kick-out clause, not a breach of contract. The seller is then free to proceed with the new, backup offer.

What Buyers Should Know

Buyers encountering a kick-out clause in a purchase agreement need to thoroughly understand its implications before signing. This clause introduces a level of uncertainty, as their accepted offer is not fully secure until all specified contingencies are removed or the kick-out period expires without activation. Should a kick-out notice be received, the buyer will face a very limited timeframe, usually 24 to 72 hours, to make a significant financial decision.

The primary buyer must assess their ability to proceed with the purchase without the protection of their original contingencies, such as needing to sell their current home. This could mean securing alternative financing or being prepared to carry two mortgages simultaneously if their existing home has not yet sold. The risk of losing the desired property to a stronger offer is a direct consequence of this clause. Buyers should consult with their financial advisor to understand the financial ramifications and ensure they have the resources to meet such a demand.

What Sellers Should Know

Sellers considering a kick-out clause can leverage its benefits to maintain control and flexibility during the sales process. This provision allows them to accept an offer with contingencies, such as a home sale contingency, without completely taking their property off the market. It provides a fallback option if the initial contingent sale encounters delays or falls through. By continuing to market the property, sellers increase their chances of securing a more favorable or non-contingent offer.

Effective management of a kick-out clause requires clear communication with both the primary buyer and any potential backup buyers. Sellers must ensure that all terms, including the notice period and the conditions for activation, are clearly defined in the contract. While the clause offers significant flexibility, it also demands diligent attention to timelines and proper legal procedures to avoid disputes. This careful oversight helps ensure a smoother transaction, maximizing the seller’s position in the market.