Imagine you're a home buyer. You've looked for months and have finally found the home of your dreams. Everything is in place. You have loan approval from your mortgage lender, have told friends and family about your big move, and have even begun to decorate the home in your mind. And then your real estate agent calls to tell you that the seller has accepted another offer, and you won't be getting the house unless you do one thing.
Kick-out clause
The kick-out clause, sometimes called a "bump clause" or "escape clause," is a stipulation home sellers sometimes include in a real estate purchase agreement. It's there to ensure the home seller doesn't get stuck waiting while a contingency is met.
Let's say you've made the offer on a house, but as part of your purchase offer, you let the seller know that you have to sell your current home before you can close on theirs. At the time you make the offer, the housing market is a little wonky. There are rumors that interest rates may rise, and sellers are becoming nervous about selling their property before the market slows down.
By inserting a kick-out clause in the agreement, the home seller is letting you know that they accept your offer -- unless something better comes along. After all, if the market does slow, it's possible that your current home will not sell as quickly as you hope. The home seller is not willing to take the chance of being stuck.
Original buyer's option
In this scenario, you have one option: Remove your contingency. When a seller employs the kick-out clause, they give you a specified timeframe to remove the contingency (or contingencies) originally agreed upon. In this case, you must agree to purchase the home before selling your property. If you can't do that, the seller is free to move on to the new buyer.
When kick-out clauses are the most popular
Given today's low housing inventory and the number of potential home buyers compared to the number of homes on the market, kick-out clauses are popular. In fact, kick-out clauses are common during a seller's market.
It doesn't matter what the contingency is. For example, a buyer may request a home inspection, a home appraisal that meets or exceeds the amount they've offered, or any other contingency. If the home seller includes a kick-out clause, there's a chance the buyer will be faced with losing the house unless the buyer agrees to drop their contingency.
When kick-out clauses are less common
Kick-out clauses matter far less when it's a buyer's market. In other words, when there are more homes on the market than there are buyers, the few buyers there are get to call the shots. If they want to include every contingency under the sun in their purchase offer, home sellers do not have much room to negotiate. After all, with so many houses on the market, the buyers can move on if the seller does not agree to their terms.
Kick-out clauses are designed to protect sellers, and if you're selling your home, you may be grateful to have the option available. However, if you're a home buyer, you must weigh the danger of buying a home with no contingencies against the risk of losing a house you want.
Signing a mortgage without a home inspection means not knowing in advance any repairs or improvements you'll need to make. Agreeing to buy a house without an appraisal means saying you'll pay the offer price, even if the home appraises for less. In other words, home buying becomes riskier.
Only you can determine whether carrying through with the purchase is important enough to take on the additional risks.
FAQs
A kick-out clause allows a seller to accept another offer unless the buyer drops their contingencies. Kick-out clauses are most often employed during a seller's market. Home buyers must determine whether they want to follow through with a contingency-free purchase -- and possibly put themselves at risk.
Can a seller accept another offer while under contract? ›
A seller cannot typically accept another offer while under contract unless there is a kick-out clause in place.
Can you accept another offer on a house that is contingent? ›
1. Contingent: Continue To Show (CCS) If an active listing is marked as Contingent: Continue to Show, or CCS, multiple contingencies may need to be satisfied. In this case, the seller and their agent have decided to continue to show the property and may even accept a better offer from another potential buyer.
Can a seller sell to someone else while under contract? ›
Generally, when a seller is under contract with a house, they cannot change their mind about selling. The contract is legally binding, and both parties must fulfill their contractual obligations. Otherwise, a lawsuit may follow.
Can a seller accept another offer after a counter offer? ›
Yes, the seller can accept another offer after a counter-offer, but they will probably have to inform the first buyer that they have received a new offer. The original buyer then has the right to match the new offer or walk away from the deal.
Can a seller back out after accepting an offer? ›
Bottom line. “Generally, a seller can't cancel without cause,” Schorr says. “You could build in some contingency, but absent that, you had better be committed to the sale.” Reneging because you fear you underpriced the house, or you actually receive a better offer, doesn't count as “cause.”
Can you counter offer a house under contract? ›
Keep in mind that, if you're countering, you're not yet in a contract. The seller could get another (better) offer while you're still going back and forth. The buyer and seller can work through negotiations until reaching an agreement, but it becomes legally binding when they sign the offer.
Why don't sellers like contingent offers? ›
A home sale contingency can be risky to sellers because there is no guarantee that the home will sell. Even if the contract allows the seller to continue to market the property and accept offers, the house may be listed “under contract,” making it less attractive to other potential buyers.
How to bump a contingent offer? ›
If the seller gets a better offer, either more money or fewer contingencies, they're allowed to “bump” the first buyer. They do this by canceling their contract if that first buyer doesn't match the new offer.
What percentage of contingent offers fall through? ›
Among contingent offers, less than five percent fall through, according to multiple sources. Broken offers may arise because the buyer isn't able to secure financing or because the seller isn't willing to lower their listing price after a low appraisal.
“Although this will cause some pushback and sometimes isn't looked at as the most ethical, a seller can legally still accept any other offer up until attorney review conclude as the deal isn't officially under contract.” For the most part, though, buyers more commonly back out of contracts rather than sellers.
Can I still show my house after accepting an offer? ›
No matter how perfectly matched your buyers are to your property, issues can arise that are out of your control, and sometimes the buyers' too. That's why it's in your best interest to let your real estate agent play the field and allow your home to be shown, even if you've accepted an offer.
Which offer is the seller obligated to accept? ›
After all, aren't the buyers giving the sellers exactly what their listing asked for? However, there are currently no U.S. laws that require this. Home sellers are free to reject or counter even a contingency-free, full-price offer, and aren't bound to any terms until they sign a written real estate purchase agreement.
Can a seller accept other offers while under contract? ›
Technically, a seller can accept another offer while under contract. However, doing so could result in legal consequences. Once a seller accepts an offer and signs a contract, they are legally bound to that contract until it is either fulfilled or terminated.
Can you ask for proof of another offer on a house? ›
Answer: The short answer is no. There's no way to get absolute proof of another offer, except when an Escalation Addendum is used (which I'll address later), but there are strategies to help determine how legitimate a listing agent's claim of multiple offers is.
What happens if a seller accepts a backup offer? ›
A backup offer can lock you into a legally binding agreement if it's accepted, even if you want to move on after issuing one. Because it's a legal contract, it can be difficult to cancel a backup offer once it's been issued.
Can the seller accept another offer while negotiating a contract with a first buyer? ›
While laws vary by state, in general, up until that contract is signed by both parties—even after counteroffers have been sent out—all new offers can be considered and accepted. Once both parties have signed it, however, the seller is pretty much locked into the deal.
Can a seller go back and accept the first offer if he does not like the counteroffer? ›
You cannot reject an offer and then later accept it. The very same rule applies to counter offers. A counter offer revokes the original offer. Thus, a seller cannot counter the buyer's offer seeking more money and, when the buyer rejects the counter, then turns around and accept the original offer.
Can a seller change their mind after signing a contract? ›
Can a seller back out of a contract? The answer is yes, but depending on the circ*mstances there could be serious legal and financial repercussions and they still might be ordered to transfer the property to the buyers.
Can a seller accept more than one backup offer? ›
As a seller, when you accept a backup offer on a house, you'll need to keep in mind that the first offer is still valid and under contract. However, it's completely reasonable to accept several backup offers while you are under contract (in case your primary buyer falls through).
