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What is a Kick-Out Clause?

As the seller’s market continues to thrive across the country, sellers are wondering how to choose the right offer. The frantic pace of the real estate market has resulted in multiple offers on desirable properties. While this may seem like a great problem for sellers to face, how do they know that the buyer they choose can close on the home? Many times, sellers make quick decisions and hope for the best, even as home prices continue to climb.

This is where a kick-out clause can help.

A kick-out clause allows a seller to continue to market the home for sale after accepting a buyer’s offer with contingencies. It also outlines the conditions under which a seller can cancel, or kick-out, the contract if they get a better offer.

Most real estate contracts include contingencies. Most common include loan approval, appraisal, and home inspection. Often buyers will also include a contingency to sell their current home. A kick-out clause protects the seller from an escrow that drags on past the agreed-upon time frames. For example, if a buyer is unable to sell their home or home inspection negotiations continue past the time frames agreed to in the contract, a seller can use the kick-out clause to force the buyer to remove the contingency or cancel the contract.

Once escrow is opened, typically both parties must agree to close the process. This can cause delays that cost the seller both time and money. A kick-out clause is one way to ensure the escrow closes on time, and that there are back-up offers ready to go if it doesn’t.

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