How the Kick-Out Clause Works

Understanding the Kick-Out Clause in Contingency Contracts

A contingency contract is one that two parties agree to perform an action contingent on another event. In the case of home sales, they are common when the buyer needs to sell their previous home to have the money to purchase the new property. Here is how such a deal works and what both parties should be aware of in the kick-out clause.

Typical Contingency Contract

In a contingency contract, the seller agrees to sell the property to the buyer contingent upon the buyer selling the previous property. The kick-out clause allows the seller to keep the home on the market and “kick-out” the buyer if another offer comes in. The buyer will have a certain amount of time, usually 72 hours, to either remove the contingency and keep the contract alive, or exercise the contingency and back out.

The Devil Is in the Details

Pay close attention to the language in the kick-out clause. Many standard contracts will contain contingency language, so the buyer may still be able to back out of the deal even after removing the contingency contract. A lender may still require the buyer to sell the home before financing the purchase, so the seller will still be left without being able to complete the deal. Make sure to cover these issues in the contract language.

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