As we have gotten deeper into this changing economy and real estate market, I’ve noticed that the need for educating the consumer on the basics of real estate transactions is alive and well.   So, I’ve decided to stick with real estate basics for a few posts.  We’ve already addressed CMAs, BPOs, and Appraisals.  Now let’s address the confusing kick out and no kick out scenarios in a contract.   

A Kick Out is a clause in a sales contract that allows the seller to terminate the contract with a buyer if a better offer comes along.  This termination is done without penalty to the seller and the buyer gets to keep their earnest money deposit.  The buyer is usually given a agreed upon amount of time to release their contingencies before the seller can void the contract.  It is common to see the time period be 48-72 hours.  In essence, a second, and presumably better contract, kicks the first contract out of primary position.  Most REALTORS(R) will continue to market a home that has a Kick Out Contract as an Active listing in hopes of obtaining a better offer.  The most common type of Kick Out Contingency is a home sale.  If a buyer needs to sell their current home in order to purchase a new home, they usually require a home sale contingency.  Most homeowners can not afford the expense of two homes and many buyers need the proceeds from the sale to help obtain financing for the new home.  Most REALTORS(R) will show buyer clients homes that are listed as having a Kick Out; especially if the buyer client would not have a Kick Out Contingency in their offer.

A No Kick Out Contract is a contract that the seller has accepted that has one or more contingencies that must be satisfied by one or both party before they will go to settlement.  These contingencies usually put the buyer in the driver’s seat for voiding a contract.  The most common types of No Kick Out Contingencies are  home inspection, radon inspection, financing, appraisal, and third party approval.  The only time a back-up contract can take primary position is if the buyer and seller can not agree to the outcome of the contingencies.  For example:  The buyer has a home inspection and finds that the house needs a new roof that will cost around $6000.  The buyer asks the seller to pay for the roof repair.  The seller says that they will not.  It is the buyer’s decision whether to proceed with the sale and pay for the roof themselves, or void the contract based on the home inspection contingency.  Short Sale Contracts fall into the No Kick Out category.  The buyer and seller agree that a third party, the short sale bank, needs to approve the sale of the home.  The seller can not void the contract while the 1st contract is being negotiated with the bank.  (This rule may be different in states other than Virginia).  The contract will become void based on Third Party Approval if the home goes to foreclosure, the bank rejects the contract offer, or the buyer walks away after a specified period of time defined in the contract.  Many agents will show buyer clients short sale listings that are under contract with No Kick Out because many short sale contracts fall through.  However, if the listing is a foreclosure or a traditional sale, many REALTORS(R) prefer not to show the home because the likelihood that the home will go to closing with the current contract is strong.