A Kick Out provision is actually an addendum to the contract
that takes into consideration the sale of another property by the buyer. It
makes the contract conditional on the buyer selling a property they currently
own.
“When a property goes under contract with this contingency,
the property is shown in the MLS system as ‘Active Kick Out.’ This
classification is different than the “Under Contract,” “Pending,” or “Active
Option” categories. The property is technically not off the market.
According to the MetroTex Association of Realtors, the description of Active
Kick Out, or KO, status is:
“Property has an offer contingent upon the sale of another
property by buyer. Still available for showings and backup offers. Will expire
on the original expiration date the agent entered.”
While this provides the buyer a benefit, in return it
affords the seller a benefit as well. This Kick Out addendum essentially allows
the seller to “kick out” the buyer if the seller receives an offer from another
buyer. If the seller accepts an offer from another buyer, they must give notice
to the current buyer and allow the current buyer the option to either remove
the contingency or terminate the contract. If the contract terminates, the
backup contract moves into the primary position.
As always, there are a couple of important items to note and
to make this provision work.
This option is not available to the seller without
this addendum.
Our Texas real estate contracts generally don’t give a
seller the option to get out. This addendum does. It gives the seller the
opportunity to require that the buyer waive the contingency with a day or two
notice AND it lets the seller require the buyer to put up additional earnest
money if they waive the contingency. Many real estate advisors suggest the
additional earnest money amount should be a “meaningful” enough amount to
reflect the buyer’s sincerity.
This contingency on the sale of other property is
actually a contingency on the buyer’s receipt of proceeds from the sale of
other property.
The buyer must receive the funds from the sale of their
property in order to move forward with this purchase. If the buyer doesn’t
receive the funds from their sale, they may get out of the contract. This could
become an issue if the buyer were closing their sale on a Friday afternoon and
funds were not disbursed before end of business. They wouldn’t have the
proceeds from their sale until the following Monday (or later if that Monday
were a holiday). Or there could be some sort of judgment or lien on the
property that prevents the buyer from receiving any proceeds from their sale.
Sellers sometimes welcome a Kick Out provision because it
allows them to continue marketing their property while they have it under
contract. Buyers can appreciate a Kick Out addendum because it reduces their
risk if their sale proceeds are a necessity for their purchase.
Cooperation from both sides can help keep a deal from landing on its bum.
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