In a perfect real estate market, every buyer would have cash in hand and every seller would have a line of people waiting at the door. In reality, transactions are often a delicate dance of “ifs” and “whens.” One of the most common “ifs” occurs when a buyer wants to buy a new home but first needs to sell their current one. This creates a “home sale contingency,” which can leave a seller’s property in limbo for weeks or months. To prevent being stuck, savvy sellers use a powerful tool: the Kick Out Clause.
A kick out clause is a provision in a real estate contract that allows a seller to keep their property on the market even after accepting a contingent offer. If the seller receives a better, non-contingent offer from a second buyer, they can “kick out” the first buyer—unless that first buyer agrees to remove their contingencies immediately.
How the Kick Out Clause Works: A Step-by-Step Scenario
To understand how this functions in the real world of SFH (Single Family Home) sales, let’s look at the typical timeline:
- The Contingent Offer: Buyer A makes an offer on a house for $500,000. However, they tell the seller, “I can only buy your house if I sell my current home first.”
- The Acceptance: The seller accepts Buyer A’s offer but insists on a kick out clause. The home is now technically under contract, but the seller continues to show the property to other people.
- The Second Buyer: Two weeks later, Buyer B tours the home. They love it and submit a $500,000 offer with no home sale contingency.
- The Notice: The seller notifies Buyer A that they have a better offer. This triggers the “kick out” period—usually 24 to 72 hours.
- The Decision: Buyer A now has two choices:
- Remove the contingency: They agree to buy the house even if their old one hasn’t sold yet (this usually requires a POF or Proof of Funds).
- Walk away: They let the deal go, get their EMD (Earnest Money Deposit) back, and the seller moves forward with Buyer B.
Why Sellers Love the Kick Out Clause
For a seller, the kick out clause is the ultimate safety net. Without it, accepting a home sale contingency is a massive gamble. If Buyer A’s home doesn’t sell, the seller has wasted a month of peak marketing time and might have to start over from scratch.
The clause allows the seller to hedge their bets. They get the security of a signed PSA (Purchase and Sale Agreement), but they don’t have to take their parcel off the market. It maintains the seller’s leverage and ensures the property doesn’t become “stale” in the eyes of other agents who use IDX feeds to track new listings.
The Buyer’s Perspective: Is it Worth the Risk?
From the buyer’s side, a kick out clause is less than ideal, but it is often the only way to secure a home when you have a house to sell. It allows you to “lock in” a price and a property while you scramble to find a buyer for your current residence.
However, buyers should be aware of the “First Right of Refusal” aspect. If you receive a kick out notice, you must be prepared to move forward regardless of the consequences. This might mean taking out a bridge loan or risking two mortgage payments at once. Before agreeing to such a clause, it is wise to have your LOI and financial T12 or personal income statements reviewed by a lender to ensure you can actually “perform” if the clause is triggered.
Key Terms to Negotiate in the Clause
Not all kick out clauses are created equal. If you are negotiating one, pay attention to these details:
- The Timeframe: 72 hours is the industry standard, but in a hot market, sellers might push for 24 or 48 hours.
- The Trigger: Does the second offer have to be for more money, or just “cleaner” (no contingencies)? Usually, any offer that is more certain to close can trigger the clause.
- The EMD: Ensure the contract clearly states that if the buyer is “kicked out,” their earnest money is returned in full without a fight.
Conclusion
The kick out clause is a brilliant compromise in the real estate world. It allows buyers to dream big while protecting sellers from the “domino effect” of failed home sales. While it adds a layer of stress to the buyer’s experience, it keeps the market moving by ensuring that the most qualified and ready buyers can always step to the front of the line.
Whether you are navigating a foreclosure or a standard suburban sale, understanding these clauses is vital for a smooth transaction. Ready to learn more about the legal protections in a sale? Read our guide on ALTA in real estate to see how your title is protected after the sale.
