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What is a kick out clause?A kick out clause refers to language in the contract which permits the seller, in some cases, to cancel the contract with the current buyer.  The current buyer is “kicked out” of contract.  Another expression for the same idea is a “release clause” – the seller can release the buyer under some situations.

This is a bit of a surprise to most Silicon Valley home buyers, who tend to think that they can walk away from a property during their contingency time frames, but a seller is stuck with them, no matter what.  That’s simply not true!

In the last few years, both the CAR and PRDS contract forms have been updated.  Both now include language that specifies the seller’s right to cancel the contract.  Both parties have rights and responsibilities. Failing to do what one has promised to do in the purchase agreement could potentially find that home buyer out of contract and without that home to buy.  There are many shades of gray, and few things are automatic.  If a seller is going to give a buyer the boot, there will be a “notice to perform” tendered first.

Let’s talk specifics.  When can the seller kick out or release the buyer?

  • If the contract is subject to the sale of another home, there may be a release clause in the agreement stating that if the seller gets a better offer, the buyer may have 72 hours to perform (sell the home) or be let go.   This is the most commonly seen use for the phrase.  In this case, the buyers may have done everything possible to sell their current home but not been successful, and they could lose the house if that seller gets a better offer.   Normally there is a period of time in which the buyer is protected – time to get the house sold. It often ranges from 2 to 4 weeks.
  • With bank owned homes, several lending institutions want to keep offering the home for sale even after there’s a ratified contract so that they keep open the possibility of the home selling for more. It is understandable that they want to mitigate their loss, but it makes buyers in contract very nervous about spending money on appraisals and inspections!  Most of the “risk” is on the buyer’s side.
  • If there’s a short sale, the seller has a contingency for bank approval.  If a better offer comes along while waiting for bank approval, the seller can usually release the buyer without much difficulty.

This concept is most likely to be utilized in purchase agreements when it’s a bank owned, short sale or contingent upon the sale of another property deal.  But if a buyer defaults by not depositing money to title, not providing proof of funds in the specified time frame or failing to do some other contractually promised items, the seller may be able to kick that buyer out or release him or her.