What Is A Kickout?
In Virginia, home buyers and home sellers may encounter a situation where a home purchase contract is said to be under a “kickout” or a home sale contingency. No, they aren’t being evicted nor are they on the hoof end of a horse. For those unfamiliar with the term, here’s how that works.
First Step: An Original Sales Contract
The seller has offered their home for sale, and has agreed to accept a buyer’s offer to purchase. This is the primary purchase contract and becomes effective immediately upon agreement of all terms by both parties. Ordinarily this would make the home sale “Pending” in our MLS system which removes it from local marketing as well as from syndication to outlets such as Zillow or Realtor.com. If you search online, you would not be able to find a pending sale anywhere because it is no longer “for sale”. It is waiting for any contract pending contingencies (inspections, financing etc) to be completed prior to the closing date.
But sometimes when a Buyer wants to buy that particular home but needs to sell their existing home first, … and the Seller wants to accept the offer but not fully remove the home from the market while waiting for the buyer’s home to sell… both buyers and sellers may want additional terms. Think: cake and eat it too. Enter the Home Sale Contingency or Kickout Clause.
2nd Step: A Kickout Home Sale Contract Contingency
If a second buyer wants to buy the same property he may submit a backup offer to purchase the home, and if the seller wants to accept, the seller would accept the second offer, subject to the termination of the first offer. At that point the first buyer is given notice (commonly 48 hours or so) to remove their home sale contingency. If the buyer does not or cannot remove the contingency (usually because they cannot sell their existing home), then the seller could “kick out” the first offer and accept the second one. Thus the phrase.
Occasionally our buyers want to buy a property that is still being marketed as “Active Listing with a Kickout”. Did you know that Realtors have a duty to submit all offers to a seller, regardless of whether there is already a Purchase Contract in effect at the time of an offer? The seller must be informed about all interest in the home. This is where the seller will need to make some interesting decisions.
What’s In It For The Seller?
The seller can have it both ways. A big ticket is that the property remains “For Sale” on the MLS and is actively soliciting other buyers during the contingency period. And if the seller receives a backup offer with more favorable terms than the primary contract during this period, the seller may be able to negotiate contract terms with the second buyer. Sometimes the seller can also achieve a higher backup price or a more favorable settlement date. It could be anything that the seller deems more desirable to the seller, in which case the seller can accept the second offer as a backup offer subject to the termination of the first kickout contingency sales contract.
What About The First Buyer?
If the first buyer cannot remove the kickout contingency, usually requiring an existing home to be sold before proceeding to a closing, he will be unable to proceed with the purchase of the home. The first contract is terminated and you might need to offer the first buyer a box of Kleenex.
What’s in it for the Second Backup Buyer?
This is a chance to score a sales contract on a home that otherwise would have been off-market, assuming that the backup buyer is able to offer suitable terms. Sometimes a less-than-full-price offer is counteroffered by the seller revealing a price that matches his first contract price. This could open the door to potential savings for the backup offer. However in some cases there are multiple buyers waiting in the wings and the 2nd buyer’s realtor may advise a higher price offer in specific circumstances. There is also an advantage to the second buyer if his existing home is already under contract with a scheduled settlement date.
What is Most Important About a Home Sale Kickout Contingency?
You already know my answer to this one. Getting good professional advice is the most crucial step in assuring that your home sale or home purchase will proceed smoothly … because potential issues were handled beforehand in the written legal contracts. Both buyer and seller need a good realtor to advise them of their options during the period the home is being marketed and while contracts are being negotiated. And in Virginia it’s a good idea to have legal assistance during this time as well.