Understanding the Power of the Kick-Out Clause in Real Estate Deals

What is a Kick-Out Clause?

A kick-out clause is a provision in a sales contract that offers the seller the ability to void the agreement if a superior offer is received before the deal is finalized. This clause provides sellers with a safety net, ensuring they do not miss out on more lucrative offers after accepting an initial offer that may not be as high as desired.

Example Scenario

Imagine the following scenario to better understand the kick-out clause:

When the Johnson family decided to sell their home, they received an offer from the Wilsons that was significantly lower than what they wanted. Uncertain about how quickly their home would sell, they accepted this initial offer while retaining the ability to consider better offers that might arrive before the sale concluded. To legally secure this arrangement, they included a kick-out clause in the sales contract. If another buyer came along with a higher offer, the Johnsons could ‘kick out’ the Wilsons’ offer, terminating the initial agreement and accepting the better offer instead.

Advantages of a Kick-Out Clause

• Flexibility: Gives sellers the ability to entertain and accept higher offers even after accepting an initial offer.
• Protection: Ensures sellers are not stuck with a significantly lower offer if a much better one comes along before closing.
• Motivation for Buyers: Potential buyers might expedite their decision-making process, knowing their offer might be kicked out if they delay finalizing the deal.

Considerations for Sellers and Buyers

For Sellers

• Understand the legal implications and ensure the clause conforms with local real estate laws.
• Clearly outline the terms and conditions in the contract, specifying the conditions under which the clause can be enacted.
• Communicate openly with potential buyers about the existence and operation of the kick-out clause.

For Buyers

• Be aware that your offer could be overtaken by a better one before the finalization of the sale.
• Consider negotiating terms that give you a better standing, such as reducing the contingency period or offering more attractive terms upfront.
• Understand local laws and how they might affect the implementation of the kick-out clause.

Frequently Asked Questions

What is the purpose of a kick-out clause?

The primary purpose of a kick-out clause is to provide sellers with the flexibility to accept higher offers that may come in before the sale is closed, ensuring they do not miss out on better opportunities.

Can buyers negotiate against a kick-out clause?

Yes, buyers can negotiate terms that may soften the effect of a kick-out clause, such as shortening contingency periods or offering more favorable terms initially to make their offer more attractive.

Are kick-out clauses common in real estate deals?

They are relatively common in situations where the seller is unsure of the market response to their asking price and wants to keep options open for better offers. They can also be pivotal in competitive real estate markets.

Does the kick-out clause benefit the buyer in any way?

While it primarily benefits the seller, it can also motivate serious buyers to act quickly and make more compelling offers, thereby reducing the time a property remains on the market.

Related Terms: contingent sales, real estate clauses, contract provisions, property negotiations.