Are you planning to sell your home, but your buyer isn’t ready to sign the agreement? While timing is everything when selling or buying a home, several home purchase contracts have contingency clauses, which may delay the sale.

One of these contingencies is known as a kick-out clause. While a kick-out clause in real estate can be a great idea, there are several considerations that the buyer and seller should make before considering it.

Here is what you need to know about this contingency clause and if it is the right option for you.

What Is a Kick-Out Clause in Real Estate?

Also referred to as a bump-out clause, this type of contingency in home purchase contracts allows a home seller to continue showing their home even after a buyer has made an offer.

The clause also allows the seller to handle multiple offers and reject the first offer in favor of another offer from a different buyer, with a contingency. A kick-out clause is standard in cases where a buyer wishes to buy a new home but also needs to sell their current home to get the finances they need to buy the new house.

A kick-out clause can be beneficial to both the buyer and the seller. Suppose the clause is included in a purchase contract. The seller doesn’t have to take their property off the market.

How a Kick-Out Clause Works

If a kick-out clause is included in the purchase contract, the seller has to notify the first buyer if they get a better or a non-contingency buyer. The first buyer can then decide if they want to complete the purchase or walk away from it.

Property buyers have at least 72 hours to decide whether or not they will buy the property. This ensures the seller doesn’t lose the second offer and gives the buyer time to weigh their options or get the money they need.

If a buyer walks away from the sale, any money they had paid or the buyer’s earnest money is returned to them. The seller is then free to enter into a new purchase contract. However, if the first buyer agrees to purchase the home without the clause, they must close within 45 days.

Here’s a kick-out clause example. Let’s say a buyer makes an offer and only has $ 160,000 that they can put down. Later, another buyer puts down $190,000 the seller can choose to accept the second offer.

However, they will have to inform the first buyer and give them 72 hours to make a better offer or walk away from the sale.

When buyers make a contingent offer within a kick-out clause, they must sell their home within a specific period. This is especially important in competitive markets. Failing to sell a house quickly also means losing a new home to another buyer.

This clause is common in buyer’s markets because no home seller wants to remain stuck in a drawn-out home sale.

Why Sellers Accept Offers With Kick-Out Clause

There are several reasons why home sellers accept such offers from a buyer. First, if the real estate market is good, a seller can accept the offer as they wait for the buyer to sell their current home. This is because the house is likely to sell quickly.

Other aspects, such as an extra-large earnest money deposit or the buyer’s offer, which can be above the asking price, can encourage a seller to wait for the buyer to buy the home under the contingency clause.

Sellers who aren’t in a rush to sell their property can also choose to take a contingent offer. Kick-out clauses protect sellers from re-listing their home if a sale doesn’t fall through and the risks of a cooling housing market.

The clause gives home sellers some flexibility, protects, and gives buyers time to sell their homes and have money to buy a new home. Several buyers prefer having a kick-out clause because it is better than an outright rejection of an offer.

Pros of a Kick-Out Clause for Sellers

Since a kick-out clause allows sellers to accept an offer on their home and keep their options open, a seller will likely get a better offer from another buyer. Your real estate agent will continue to market and show your home to any other potential buyer without any financial or legal risks.

If a seller gets another offer, the first buyer may have to eliminate the contingencies, which will also speed up the sale. Kick-out clauses in real estate contracts motivate buyers to sell their current homes quickly and buy new ones before the seller gets a better offer.

A seller can entertain another offer with one in their back pocket, which is a good incentive because they can get a higher offer. Since the home will also show as “contingent with kick out” in the Multiple Listing Services (MLS), other buyers will know that it is on demand and want to make a quick and better offer.

If a seller gets a better offer, they can ask the first buyer to match the second offer to preserve the deal.

Pros of a Kick-Out Clause for Buyers

A kick-out clause in real estate has some benefits for buyers. Without a kick-out clause, a seller can refuse a buyer’s offer up-front, especially if they don’t have the down payment. The clause allows buyers to sell their home with a promise of a new home as soon as they sell their old one.

The buyer will know how much they need to make to buy the new home, guiding them on how to price their home. Depending on the real estate market in their location, they will know what to expect and how to prepare for the sale and subsequent purchase.

The clause also gives the buyer peace of mind or protection in knowing that they already have a home to buy.

Cons of a Kick-Out Clause for Sellers and Buyers

Kick-out clauses have several advantages to offer. However, there are also some risks involved.

Poor Timing

It is vital to define how much time a first buyer has to decide on what to do when a seller gets a second offer. For example, suppose the seller receives a second offer on a holiday or weekend. In that case, the buyer may not be able to decide within 72 hours, as stated in the contingency purchase contract.

Buyers use this time to talk to lenders, banks, and other financiers to know if they can get a second mortgage or money to close the sale. Since such organizations don’t operate over the weekends or holidays, a buyer may not be able to respond in good time.

Since other buyers may be ready to close a sale on a holiday or weekend, the seller or second may not be willing to wait for several days. Therefore, it is crucial to be more specific with the time limits, especially during weekends, holidays, and the close of business days.

Complexity

Kick-out clauses can be very challenging to draft. To get the best out of your kick-out clause, you need to work with a real estate agent who is familiar with such contingencies and knows the correct language to use while drafting the purchase agreement.

It is vital that both the seller and buyer read the purchase contract and understand the contingency included before signing it. 

Financial Problems

If a seller gets a second offer and the first buyer agrees to close the sale without contingencies even before selling their home, the closing process may not be as smooth.

Sometimes, the buyer may not have enough money to cover their current and new home mortgages. They may not be able to get the financing they need, which may cause several financial issues.

If the buyer fails to get the financing they need to close the deal, the seller may have to retain the buyer’s earnest money as compensation. The buyer will still have to re-list their home, which has some financial implications.

To protect the buyer from losing money and avoid any other financial issues, it may be best for sellers or real estate agents to ask the contingent buyer to show proof that they can get financing before they remove a home from a contingency contract.

This could be a pre-approval letter showing they can afford to pay two mortgages. If you want to buy a home with a kick-out clause, talk to your agent and learn about second home mortgages or home equity loans.

Consider a Kick-Out Clause House When Buying or Selling a Home

A kick-out clause can help home buyers put in an offer while also waiting to sell their current home. The clause gives buyers time to get financing and protects sellers from being stuck with an offer that can fall through.

If you are planning to sell your house, enter your home address on our website and get an instant cash offer for the value of your house.

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Did you know that the average American will pay an additional 3-6% during the home buying process to cover the closing fees? So if you’re buying a home for $400,000, this cost will amount to roughly $20,000!

Yet, there are many fees included in the closing costs. One of them is the title search. What is a title search, and how much does a title search cost?

In this article, we’ll cover everything you need to know. So keep reading to learn more about the cost of a title search.

What Is a Title?

A title is a legal certification that details an asset’s ownership information and outlines the owner’s rights. You must transfer the title from the seller to the buyer when you purchase a significant asset, like a home or car. 

Not transferring the title would mean the seller still owns the property, not the buyer. Here we’ll be discussing property titles for homes and raw land. 

What Is a Title Search?

A title search is an investigation into the details of a title to ensure no one else has a claim to the asset. Buyers should conduct a property title search to review the property’s ownership history and confirm that the current owner has the right to sell. 

It’s more common than you would imagine for there to be title problems. For example, someone could have an inheritance dispute on the property, hindering the seller’s right to sell it.

A title search will reveal if there are any claims, easements, or liens on the property that could stall or cancel the sale. Examples of liens include:

• Liens for unpaid debts
• Mortgages
• Tax Liens

Liens stay with a property even when the title changes hands, which means if you don’t identify an existing lien, you could end up financially responsible for paying it. 

Failing to identify any title problems before closing the property sale could result in expensive fees to correct the issue once you’re the owner. 

A property title search will also detail legal restrictions or limitations regarding how the property can be used. For instance, the local government may have laws about:

• Pet ownership
• Number of vehicles allowed
• Process for securing personal loans for home renovation projects

You can proceed with the sale if the title search comes back clear. But if the investigation shows problems, you can work with the seller to correct the issues before the sale or abandon the purchase altogether. 

Do You Need a Title Search?

While it’s not legally required, you absolutely need to conduct a title search on a property before closing. It’s for your protection. In fact, lenders almost always require you to perform a title search and purchase title insurance as part of your mortgage. 

If you’re paying cash, you can forgo the title search to close on the property faster. However, you could end up with some severe problems if title issues arise. 

It’s possible that the current owner isn’t aware of issues with the title. For example, there could be an old claim against the title, or they may have inherited a lien without knowing it. 

More often, there are easily fixable errors in the records that come with improper record keeping. It’s always best to perform a title search and correct the problems before continuing with the sale. 

How Much Does a Title Search Cost?

There are several varieties of the term “title search,” so when searching for the estimated cost, consider these questions:

• How much does it cost for a title search?
• How much does a property title search cost?
• How much does a land title search cost?

Although the term varies slightly, you’ll receive the same answer to these questions regarding how much you can expect to pay for the cost of a title search for your new home. 

The cost depends on the size of the home and the state you live in. For a standard single-family home, you can expect to pay between $100-$250. However, the cost for a title search will be higher for larger homes and other types of buildings.

Further, while most title searches only take a few hours, some can take up to two weeks. For these more complex titles, the cost will go up. Thus, it’s best to hire an experienced attorney or title search company to complete the task.

This way, you get all the information you need to close the deal without worrying about a problem coming up down the line.

You can ask the title company to provide you with a specific estimate of the title search cost before you go ahead with the investigation. 

Additionally, ensure the company you choose has a recognized underwriter that will fund a claim if you experience future problems. Having the backing of a major underwriter is an excellent backup plan should a claim arise because they will pay the claim and provide your title insurance.

How Much Does It Cost to Do a Title Search Yourself? 

Although the title search cost is relatively inexpensive, if you’re looking to save money on the closing costs, you may consider doing the title search yourself. 

Of course, you can search government records, which are free to the public. But keep in mind that counties and municipalities organize property information differently, so you should prepare to visit several government offices during your search.

Before going anywhere, you can start by going to the county’s website of where the property is located. The county assessor’s office should have the records you need about current ownership and the title transfer from the previous owner to the current owner. 

Next, you need the help of the county’s deeds office. You’ll be able to identify the title chain that shows the home’s ownership history. Here you can see every person who has bought and sold the property. 

You can also look for liens and judgments that might cause problems with the title using this information.

While much of the information you require will be online, you may need to visit the offices in person to get older records.

In case you can’t find what you’re looking for, the county courthouse and recorder’s office are also other trustworthy sources of information. Remember to search online or call before visiting any office in person to save time.

Most importantly, if you decide to do your own title search, it will be free but could take a lot of time. Also, you could miss something if you don’t have experience researching titles and title issues, costing you a lot in the future. 

Thoughtfully consider if doing your own title search is the best decision. After all, the home buying process is stressful, and this could add more stress to your plate.

Additional Title Fees

The title search is only one fee included within the title fees. There are several other fees in this category to know. For instance, if you hire an attorney or title search company to conduct the search, you’ll need to pay fees for their services. 

A real estate attorney’s fee will cover the cost of reviewing all your paperwork, including the property’s title. 

Working with a title company will come with a title settlement fee (closing fee). This covers the administrative costs of closing, such as:

• Escrow
• Deed preparation fees
• Survey and notary fees
• Title search fees

Title companies don’t always list the cost of each fee included in the settlement fee. Ask your representative if you have questions about what the fee includes or the cost for a specific service.

Title Insurance

As mentioned, if you’re taking out a mortgage, you’ll likely be required to purchase title insurance. There are two types of title insurance—one for the lender and one for the buyer.

The required policy is the lender’s title insurance. However, it only protects the lender from any claims on the property should an issue arise after the sale. It’s always possible for something to slip through the search and become a problem later on. 

Owner’s title insurance is not a requirement, but most experts recommend it. You’ll receive the same protections as your lender if any claims or liens were missed during the search. 

Typically, you can bundle the lender’s and owner’s title insurance together for a better price. The expense is a one-time fee that you pay during closing costs.

Lender’s title insurance is around 0.5% to 1% of the sale price of the home. Owner’s title insurance is between a few hundred to a few thousand dollars. The cost mostly depends on the state you live in and the size of your property. 

How Much Does a Title Search Cost? Explained

Now that you know the answer to the question, “How much does a title search cost?” you’re one step closer to mastering the home buying process. 

If you’re ready to start searching for a new home, use our free home estimator to see how much you can get from selling your current place for cash! It will help you determine how much you can afford for your next home.

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