The market is really good here outside Atlanta Georgia! It is a great time to sell and can be difficult for buyers. Having a house to sell before you buy a new one is a great way to get that deal done. A kick-out is a way to bring buyers and sellers together.
In the beginning of January, which most think is a very dead time of the year, I was selling a home for my clients. After being on the market for a little more than 1 week, we received a great offer – full ask, closing right when we wanted, but with a contingency. The contingency was that the buyers would have to sell their house before they could close on my client’s house. This can be a sticky situation. Everything about the offer was spot on – except this contingency. After discussing with my clients how to protect them in this deal we decided to put a Kick-Out Clause with 48 hour notice in place. Which means – if another offer comes in that my client wants to take, we give the buyers 48 hour notice to remove their contingencies or get “kicked-out.”
So everyone agreed. The sellers had a deal on their house, and the buyers could sell their house and not be concerned about having not place to go when it sold.
So how does it work?
1) Buyers and Sellers proceed as if there is no contingency. The closing date is set – inspections happen – and the buyer’s agent gets busy selling the buyer’ house.
2) As the Seller’s agent, I keep aggressively marketing and showing my client’s home. I continue to update my Zillow listing, open houses, Facebook ads, call prospective buyers – everything I do when a house is first listed. My goal is to make sure my sellers close on or near their expected close date.
3) We received another offer. A great offer. Full asking price with slightly better terms. The buyers of this second offer really loved the house too and really wanted to buy the house. It was a win-win for my sellers. If the first buyers couldn’t remove their contingency, we had a second great deal that we could go right into once the kick-out was invoked.
4) We invoked the kick-out. We gave notice to the first buyers that we had a great offer with no contingencies and gave them the opportunity to remove their contingencies or exit the deal and get their earnest money back.
5) The origina buyers loved the house, they had done inspections and measured for furniture and their house was under contract. They decided to risk their earnest money and remove the contingencies. My client’s house had already appraised so the buyers also removed the appraisal contingency at this time.
6) Disappointed, the second offer decided to make their offer a back-up offer. I will write another blog post about why back-up offers are good for sellers.
7) The result – my sellers sold their house on time, the buyers are thrilled they got the house of their dreams. The second buyer was in position to be the primary buyer with no further negotiations, in the event anything happened to the first buyer’s deal.
Lesson! In this market – get there FIRST! Even though the buyer of this house had a contingency – they still got the house they wanted and the sellers got the deal they wanted.
5 Keys to Using a Kick-Out
Before advising your clients to take a contingent offer with a Kick-Out do these 5 things.
1) UNDERSTANDING KICK OUT FOR SELLERS – Make sure your seller client understands what a kick-out is and that you may have to negotiate a second deal and change deals mid-stream. This can be too much ambiguity for some sellers.
2) KNOW YOUR BUYERS HOME – Understand the buyers home they need to sell. Do your own comps, go see the property, approach your buyers home as if YOU have to sell it. Know how much they are selling it for and the market for their house. If you are a good seller’s agent, you will be able to make a good assessment of the ability of that house to sell and how long it will take. Even work to find them a buyer.
3) KNOW THE BUYERS AGENT – Know the agent that is selling their house. If you don’t know them, get to know them. Chat with them – ask about their process and how they work. Do they have the ability to explain the kick-out to their buyers? Will they be able to sell the buyer’s home? Check out the pictures on their other listings – do they have extended days on market for homes that should sell? You have to have a level of confidence in the other agent’s ability in order to advise your client to take a contingent offer, even with a kick-out.
4) UNDERSTANDING KICK-OUT MANAGEMENT FOR AGENTS – Understand that there is more work for you in this deal. You will need to continually market the property – even after you have a deal. If you get a second offer, you will need to negotiate that second offer and manage your clients during a second negotiation process.
5) AMENDMENTS – Everything needs to be in writing. Do not forget to create amendments removing the contingencies and sending those to the lender and the attorney.
In this market – we need to help buyers with the fear that their house won’t sell by giving them options to buy. Sellers’ agents can accommodate that with a Kick-Out but it does require more management and work.
Please leave your comments below. Have you used a Kick-Out? How did it go?
All my best,