What is a Kick-out Clause?

So-called “kick-out clauses” have become more common in real estate deals these days.  Sellers often insist on it due to their privileged position, with their homes attracting multiple offers.  Search homes for sale in Flying Horse, Colorado Springs, CO here:  http://www.rehava.com

A kick-out clause is a contingency in a purchase agreement that enables the seller to continue to offer their home for sale even after a bid has been accepted.  If they receive a better offer, they can then back out of the deal and accept the new bid instead. The clause has traditionally been added when buyers have a contingency in their offer, such as the need to sell their own home first in order to complete the purchase.

Buyers use Kick-out Clause 

Some buyers also proactively add a kick-out clause to make their offer seem more enticing.

Ramona Williams, a real estate professional with Keller Williams Partners in Colorado Springs, Colo., told Clever in a February interview that kick-out clauses are very common. “Every contract we negotiate where a buyer has to sell a property to purchase a property will have a kick-out clause or a contingency offer,” she said.

The kick-out clause puts buyers in a stronger negotiating position with other bidders, because they can turn around and say they already have an offer on their home.  However, there is a risk that the second buyer may back out.  This results in the seller losing both the original and the second offer. In addition, houses that are marketed with a kick-out clause can be less attractive to buyers.  They realize that whoever made the original offer has the chance to follow up with another, improved bid. Some buyers don’t want to get caught up in bidding wars.

Buyers Can Benefit too

The kick-out clause is used in both a buyer’s and seller’s market.  It keeps the buyer from having to carry two mortgages if they have trouble selling their house.

With a kick-out clause, the usual condition is that the seller must notify the buyer in writing if they receive a more favorable offer. Then, the buyer will have a 72-hour window to decide whether to increase their own offer or pull out of the deal. Should they decide to forfeit the home, they can usually get the earnest money they paid down back, although this will depend on the terms of the contract they signed.

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