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There is a lot of legalese and jargon in a home sale contract. Especially for first-time buyers, it can be confusing to review so many new concepts at once.
One big learning curve is understanding contingencies. These aspects of the contract can make or break a deal. One such contingency combines a home's status as well as a contingency: an "Active Kick Out" clause.
While beginning your new home search, have you been wondering just what does "active kick out" mean in Texas real estate? You've come to the right place.
Home Sale Status
First, the "active" part of "active kick out" refers to the home's market status. There are generally four statuses that describe home listings.
Active means that the home is actively on the market. Agents will show the property and the sellers are open for offers.
Active-option means that the home is under contract. An offer has been made but it may be waiting on appraisals, inspections, and final financing to come through.
Pending refers to the point where all of the details have been worked through. At this time it's just a matter of getting to the closing date with all parties involved.
Finally, the house will be sold!
Contingencies in General
Just like snowflakes and fingerprints, no two real estate sale contracts are the same. Buyers and sellers may add provisions to the contract based on their situations.
There are quite a few reasons to request a contingency for the sale, including financing or appraisal results. Here are some common contingency terms you may run into as you review a contract:
Mortgage Approval Contingency
Insurance Approval
Inspection Contingency
Closing Date Extension or Contraction
Sale of Home Contingency
Active Kick Out
An Active Kick Out or AKO contingency used to be relatively uncommon. Over the past few years, this contingency request has gained popularity. Let's take a closer look at what active kick out actually means.
What Does "Active Kick Out" Mean?
The "kick out" part doesn't actually have anything to do with kicking someone out of their home. It actually refers to kicking out a buyer's offer. Basically, a buyer may put in an offer and put down earnest money. However, buyers often already own a home, and they want to sell it before they can proceed with the new deal.
In this case, the buyer will put in a contingency on the contract that states the deal depends on the sale of their current property. That's the sale of home contingency.
The seller may accept that contingency as it is, or they may add an Active Kick Out contingency. This is a contingency on the seller's side.
The AKO states that the house will remain active and could receive new offers. If the seller receives a new offer before the original buyer has sold their home, they have the right to accept that new offer.
The contingency may include a window where the original buyer has a chance to finalize their deal. If they can't, their original offer will be "kicked out" and the seller will move on with the new offer. In this case, the earnest money is refunded to the buyer.
When is Active Kick Out the Right Option?
The AKO contingency is a good tool in the real estate agent's toolbox. However, it's not always the best option to choose.
The Active Kick Out contingency is a way to protect a seller in a market environment that is active but not hot. It also can add a layer of protection if the buyer has a home that might be difficult to sell.
The contingency also offers the buyer a chance to have an offer accepted while they are getting their own house on the market. If they are comfortable with a little bit of risk of not getting the home, this is a good option for the buyer as well.
A Few Further Considerations
Adding contingencies to a sale contract is always a tricky proposition. Sometimes, proposing contingencies will spook a buyer or seller from the sale altogether. At the same time, contingencies can also provide a level of protection and peace of mind in order to get a deal done.
When you're thinking about adding an Active Kick Out or any other contingency, think about the current state of the market in your area and the buyer's area.
On the one hand, if houses are selling quickly in your neighborhood, you will probably have plenty of offers. You might not even need to accept an offer with a Sale of Home contingency on it. You don't have to accept an offer that you're not comfortable with.
On the other hand, if house sales are lagging, it might mean that you'll have to wait for more offers to come up. But this also implies that the buyer's house might not sell for a long time, either. All in all, it comes down to how much you want to get your house into the next stage of the process. Understanding when to include an active kick out and when not to is an area where having an experienced real estate agent on your side can really help.
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The home buying or selling process can be an emotional roller coaster. Contingencies add yet another loop-de-loop to an already fraught and complex process.
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