A Kick Out provision goes by many names in the world of Texas real estate contracts. It’s also known as a Knock Out clause, a Sale of Other Property contingency or simply a contingent contract.
A Kick Out provision is actually an addendum to the contract that takes into consideration the sale of another property by the buyer. It makes the contract conditional on the buyer selling a property they currently own.
“When a property goes under contract with this contingency, the property is shown in the MLS system as ‘Active Kick Out.’This classification is different than the “Under Contract,” “Pending,” or “Active Option” categories. The property is technically not off the market.
According to the MetroTex Association of Realtors, the description of Active Kick Out, or KO, status is:
“Property has an offer contingent upon the sale of another property by buyer. Still available for showings and backup offers. Will expire on the original expiration date the agent entered.”
While this provides the buyer a benefit, in return it affords the seller a benefit as well. This Kick Out addendum essentially allows the seller to “kick out” the buyer if the seller receives an offer from another buyer. If the seller accepts an offer from another buyer, they must give notice to the current buyer and allow the current buyer the option to either remove the contingency or terminate the contract. If the contract terminates, the backup contract moves into the primary position.
As always, there are a couple of important items to note and to make this provision work.
This option is not available to the seller without this addendum.
Our Texas real estate contracts generally don’t give a seller the option to get out. This addendum does. It gives the seller the opportunity to require that the buyer waive the contingency with a day or two notice AND it lets the seller require the buyer to put up additional earnest money if they waive the contingency. Many real estate advisors suggest the additional earnest money amount should be a “meaningful” enough amount to reflect the buyer’s sincerity.
This contingency on the sale of other property is actually a contingency on the buyer’s receipt of proceeds from the sale of other property.
The buyer must receive the funds from the sale of their property in order to move forward with this purchase. If the buyer doesn’t receive the funds from their sale, they may get out of the contract. This could become an issue if the buyer were closing their sale on a Friday afternoon and funds were not disbursed before end of business. They wouldn’t have the proceeds from their sale until the following Monday (or later if that Monday were a holiday). Or there could be some sort of judgment or lien on the property that prevents the buyer from receiving any proceeds from their sale.
Sellers sometimes welcome a Kick Out provision because it allows them to continue marketing their property while they have it under contract. Buyers can appreciate a Kick Out addendum because it reduces their risk if their sale proceeds are a necessity for their purchase.
Cooperation from both sides can help keep a deal from landing on its bum.
The opinions expressed are of the individual author for informational purposes only and not for legal advice. Contact an attorney for any particular issue or problem.
