Real Estate: Contingency Contracts and Kick-Out Clauses
By Jess Barron, Lindsey’s Inc. Realtors
Contingencies are a normal part of real estate contracts. Realtors typically see contingencies based on the buyer’s loan being approved, as well as the property appraising.
However, real estate agents are seeing more and more purchase and sale agreements contingent upon the buyer’s current home selling. This can be a very stressful task, to time the sale of a buyer’s current home with the sale of their new home.
In large part this increase in contingency contracts is due to Coweta County having such a strong real estate market. People are hesitant to list their home for sale before looking for a new home, because properties are selling so quickly. It would not be a good idea to sell your home without having anywhere to go. Many buyers are identifying a home to purchase first, then listing their home second.
A contingency contract hurts your negotiation power. Contingency buyers are having to compete with cash purchasers and purchasers who do not need to sell their homes first in order to buy. From the seller’s point of view, why would you take on a contract that carries the risk of the buyer’s current home not selling? Depending on where the purchase’s current house is though, the risk can be small. A home in a very popular area or neighborhood will likely sell fast.
The conversation and knowledge shared between the listing agent and the buyer’s agent is critical in these contingency contracts and negotiations. Everyone needs to be on the same page with realistic expectations. Buyers with a place to stay in between residences are in a stronger position. Their negotiation power is not affected by the contingency of their current home selling. Not everyone has this luxury. Also, most people do not wish to move twice.
A “kickout clause” is often part of the contingency agreement. This gives the seller an option to take on another contract that would replace their current contingency agreement. Kickout clauses often have 24 hour to 72 hour time windows. If a seller receives another offer, the buyer with the contingency will then have 24 to 72 hours to drop their contingency and move forward with the contract. If the contingency buyer elects not to move forward, then the new contract would take the place of the contingency contract. This is one of the more complex situations in our business.
An experienced real estate agent with knowledge and experience on contingencies is very important in this market. A skilled listing agent is imperative as it is critical to price and market the home correctly in these circumstances. Make sure you consider hiring a capable Realtor in these situations.
Jess Barron is an Associate Broker with Lindsey’s Inc. Realtors and former President of the Newnan-Coweta Board of Realtors.