by Dian Hymer
A kick-out clause is real estate jargon for a contract contingency. A contract contingency is a condition that must be met if the sale is to go through. It's also sometimes called a weasel clause because if the condition isn't met the party who benefits from the contingency can usually be released from the contract.
A common weasel clause is a contingency that gives the buyers the opportunity to have a property professionally inspected. If the property doesn't inspect satisfactorily, the buyers can usually get out of the contract without risking their deposit money.
A financing contingency is another common contract contingency. If the buyers try to get a mortgage but can't, they can usually be released from the contract and get their deposit back.
Other kick-out clauses include: a contingency for the sale of another property, a contingency to find satisfactory insurance (common in areas, like California, where it's sometimes hard to get insurance coverage) or a contingency for a review of the contract by an attorney.
First Time Tip: Just because your purchase contract includes contingencies, don't assume that you have an automatic out of the contract. You can't simply cancel the contract because you change your mind or find another home you like better. If you do, you risk your deposit or a possible law suit.
When you enter into a contract to purchase a home, it's presumed you do so in good faith. This means that you can't use your contract contingencies to weasel out of the contract for reasons other than those specified in the contract.
For example, if you try diligently to get a loan and one lender after another turns you down, you probably have a legitimate way out of the contract. But, if you never try to get a loan and attempt to use your financing contingency clause to get out of the contract, the seller might have legitimate recourse against you. So, don't enter into a contract to buy a home unless you're sure you want to buy it.
Also, the way a contract contingency is worded may affect whether or not you have an automatic out of the contract if you want to get out. The wording of inspection contingencies varies from one contract to the next.
Some inspection contingencies give buyers the absolute right to approve or disapprove of the inspections. If they don't like something that surfaces during the inspections, they don't have to buy the home.
Other inspection contingencies give the sellers the option to repair defects. If the sellers won't or can't fix the defects, the buyers can be released from the contract. But, if the sellers can and will remedy the problems, the buyers usually have to complete the purchase. In this case, the inspection contingency doesn't give the buyers an automatic out.
Contingencies are included to protect you. Make sure that your offer includes the contingencies you need. But, also be aware that there's often an advantage to making the cleanest contract possible.
A clean contract is one that is not loaded up with weasel clauses. The more contract contingencies, the more opportunities for a purchase transaction to fall apart. From the sellers standpoint, the fewer contingencies, the better.
Buyers in multiple offer situations--where they are competing with other buyers for a home--will be at an advantage if their contract includes as few contingencies as possible.
The Closing: Even if you aren't in a multiple offer competition, you may be able to negotiate a better price if you go into the offer presentation with a clean contract.
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