Florida Real Estate Sales Associate Examination Content OutlineReal Estate Contracts and AgencyMedium
A buyer is interested in a property but needs to sell their current home first. To secure the desired property, the buyer enters into an agreement with the seller that allows them to purchase the property, but only if their current home sells within 60 days. This agreement also specifies that if another offer comes in, the seller must notify the buyer, who then has 72 hours to remove the contingency and proceed with the purchase. What type of agreement has been established?
- AA kick-out clause with a contingency
- BAn installment contract
- CAn option contract
- DA right of first refusal
Show answer & explanationAnswer & explanation
Correct answer: A. A kick-out clause with a contingency
This scenario describes a kick-out clause, which is a specific type of contingency in a sales contract allowing the seller to accept other offers while the initial buyer works to fulfill their contingency. The initial buyer then has a set period to remove their contingency or lose the property.
Why the other options are wrong
- B. An installment contract (or land contract) involves the buyer making payments directly to the seller over time, with the seller retaining title until the full purchase price is paid.
- C. An option contract gives the buyer the right to buy, but typically doesn't involve a seller accepting other offers while the option is active.
- D. A right of first refusal gives a party the right to match an offer made by a third party, not the right to purchase with a contingency period.
Kick-Out Clause
A provision in a sales contract that allows a seller to continue marketing their property and accept other offers, while giving the initial buyer a specific timeframe to remove their contingency (e.g., selling their current home) or lose the property.
- Seller can continue to show the property and accept backup offers.
- Buyer has a limited time to remove their contingency if another offer is accepted.
- Commonly used when a buyer's offer is contingent on selling their current home.
Memory trick: Contingencies are like 'if-then' clauses in a property deal.