Why Sellers Should Add a Kick-Out Clause to Avoid a Contingency Nightmare
As any seller would be, you’re thrilled when an offer comes in for your property — but that excitement fades when you find out it’s contingent on the sale of the buyer’s home. What if their house takes weeks or months to sell, and you’re left waiting indefinitely?
You’re hesitant to put all of your proverbial eggs in one buyer’s basket when the sale might never actually happen. Then again, their house could sell quickly, and you don’t want to run the risk of missing out on a successful deal.
That’s where the “kick-out clause” comes in.
Generally speaking, real estate contracts tend to be crafted in a buyer-friendly manner. But there are some elements — like the kick-out clause — that give sellers a little more control over the contingency period in particular.
A closer look at contingencies
Before diving into the ins and outs of the kick-out clause, let’s talk a little bit about contract contingencies. In real estate, a “contingent” offer means that one or both parties have requested certain provisions before the deal closes.
According to the National Association of Realtors (NAR) Realtors Confidence Index, 20% of buyers waived the inspection contingency, while 24% waived the appraisal contingency in June 2024. It’s standard for homebuyers to pencil in these escape hatches in the event that the home fails to appraise, an issue crops up with the title, or if they’re unhappy with the results of the inspection.
In addition, some buyers will add a contingency to accommodate the fact that they need to sell their current home before purchasing yours. This is called the “home sale” contingency.
With this type of contingency, the sales contract will state something like “the buyer will officially purchase the home on or before mm/dd/yyyy if they’ve sold their home.” If their home hasn’t sold when that date rolls around, the sales contract is canceled.
One of the biggest risks associated with this type of offer is when there are two or three home purchases that are all contingent on the sale of another property. For example, if the sale of your buyer’s home is also contingent on the sale of their buyer’s home, and then their buyer’s mortgage falls through — the domino effect can send you back to square one.
An ideal situation would be to receive an offer without a home sale contingency. Those typically come from a buyer who has already sold their home, who doesn’t have an existing home to sell, or who doesn’t need the cash from their existing home to qualify for their next purchase. You’ll also deal with far fewer of these contingencies if you were to request a cash offer on your home from a direct real estate buyer.
