The Dreaded “Kick-Out”  

July 24, 2023

During the past week, I’ve had some rather disturbing conversations with colleagues around town about the latest kink in our very strange local real estate market.

While we’re still seeing a strong sellers’ market, there has been a noticeable uptick in contracts falling apart between the time they are accepted, usually in a bidding war, and the settlement date. While it’s happening with all types of properties, it’s more common in condos, coops and townhouses. These have contract provisions mandated by out local governments that give buyers a contingency period to examine and review disclosures from the various condo and homeowner associations. These include everything from house rules to maintenance and budget information.

Buyers get the documents after the offer is accepted and have a chance to look them over before they agree to go ahead with the purchase. If there is anything they can’t live with, from a bickering condo association to the need for expensive upcoming repairs, the buyers may walk away. They don’t owe the sellers any explanation – the decision is in the buyers’ sole discretion. And the earnest money goes back to the buyers as long as the buyers cancel during the contingency period.

With homes that are not covered by association disclosures, it can get pretty messy. To win a bidding war, the buyers usually have to waive almost all of the normal contingencies for things like home inspections, financing or appraisals. And while earnest money deposits seem to be getting higher, they shouldn’t give sellers great comfort. In almost every situation, even when there are no contingencies, sellers wind up signing a release so they can put their home back on the market as soon as possible and find other buyers. Even when the buyers totally default, your choice might be expensive litigation that could keep your house off the market until it’s resolved, or just letting it go and putting your efforts into finding new buyers – which is usually not that difficult in the current market.

If you’re selling, it’s hard to really protect yourself against your buyers getting a bad set of cold feet. If I have more than one good offer, I’ll try to get the runner up to agree to go into a backup position. If they don’t want to do that, I’ll hang onto not only the contact information for all of the agents who wrote offers, but also for people who seemed interested but weren’t in a position to get an offer together during the first round. While there is no way to completely avoid having the deal fall apart, it’s possible to mitigate the damage with a Plan B.

It’s safe to say that dealing with an accepted offer that is coming apart is the worse part of a Realtor’s job. Often, we can hold things together if it’s just a case of buyer’s remorse with no contingencies to offer an easy exit. And due in large part to clauses in our local boiler-plate contract that govern litigation – if you wind up in a lawsuit, the loser has to pay everyone’s legal fees – people generally try to work things out. That’s actually pretty impressive when you consider the number of people in our market with law degrees!

So if you find yourself in the sellers’ shoes with multiple offers to choose from, don’t get too cocky about your good fortune until after you leave the settlement table!