What is a Kick-Out Clause?

Quick Primer on Contingency Contracts

A contingency contract is one that two parties agree to perform an action contingent on another event. In the case of home sales, they are common when the buyer needs to sell their previous home to have the money to purchase the new property. Here is how such a deal works and what both parties should be aware of in the kick-out clause.

Types of Contingency Contracts

There are two kinds of contingency contracts: Simple Settlement and Sale & Settlement. The first is for when the buyers have received an offer and have a settlement date. If the date arrives and the settlement is completed, the contract stays alive. If the settlement falls through, the contract is void. The seller is generally prohibited from marketing the home until the settlement date. Sale & Settlement contingency contract, on the other hand, is for when the buyers have not yet received an offer on their current home. It allows the seller to keep the home on the market, and “kick-out” the original buyer if another offer comes in.

Kick-Out Clause

It is not a good idea to keep your home off the market for an extended period of time when other buyers may be around. For this purpose, contingency contracts usually contain a kick-out clause. This clause allows the seller to keep the home on the market and “kick-out” the party to the contingency contract. The buyer then has a certain period of time, generally 72 hours, to either remove the contingency and keep the contract alive, or exercise the contingency and pull out of the contract.

Devil in the Details

Contingency contracts protect a buyer from having to hold two mortgages at once and allow the buyer to move directly into a new home upon sale of their current home. For a seller, the contract is more risky. Even if the contingency allows the home to stay on the market, it will be listed as “Under Contract,” dissuading many potential buyers who do not want to waste their time.

For Title Insurance in Phoenixville, PA

For the best in closing services and title insurance, look no further than Members Settlement Services in Phoenixville. We have the legal experience you need to ensure you are protected. Find out more about our services from our website and call 610-482-4086 to set up a meeting.