What is a 'kick out' clause?
A question I get frequently is ‘What is a kick out clause’ in regards to a real estate contract.
You may have noticed listings that have a status of ’CNTG/NO KO’ and ‘CNTG/KO’. Both of these statuses signify that a contract with contingencies (that’s the CNTG part) has been accepted on the property.
A contingency can be any number of things. Some common ones are:
- home inspection
- condo doc review
- appraisal
- financing
If the contingency is not met, the buyer has the option to back out of the contract. These are all considered non-kick out contingencies because the seller doesn’t have the option to kick out the contract. The buyer is the one in control with these contingencies.
A contingent contract with a kick out clause is one in which the buyer needs to sell their home first and the contract is contingent upon that.
See image below showing the full text of this clause.
Seller’s don’t like to accept this kind of contingency because when the buyer’s home doesn’t sell, the contract will fall apart.
However, the kick out clause allows the seller to continue to market the home and if they get a better offer, the seller can ‘kick out’ the other contract. The seller does have to give the first buyer the option to remove the kick out clause and keep the contract intact.
So, when you are home shopping and you see a listing with the status of ‘CNTG/KO’, this home is still available!
Now, once the buyer gets their home under contract, the contingency can be removed and they don’t have to worry about another buyer coming along taking their home.
Now, in case you are wondering what happens if the contract falls through on the buyers home, the buyer is still protected. Even though the kick out clause has been removed, the contract with the seller is still dependent on the buyer actually going to settlement on the sale of their home. See paragraph 4 below.
