Current homeowners who wish to buy another home, but need to sell their home first in order to use the equity as a downpayment can wonder if they should sell the home they own first, or find the home that they wish to buy first, and then start the process of selling their home. In the case of the latter, the homeowner who wishes to purchase a new home should consider placing an offer with a "Hubbard Clause" rider.
A "Hubbard Clause" is a contingency in (or addendum/rider to ) a purchase agreement that expressly conditions the buyer's offer upon their ability to sell and close on another home or property. It is almost like a first right of refusal to purchase the property- ALMOST, but not quite. Think of it like "reserving a right to buy a particular property" while trying to sell the one you own.
While most buyers and sellers think this just another perk for the buyer, think again. By the way, I can include a number of agents who would tell you that this is a benefit for the buyer, as well. This type of agreement actually benefits the seller much more, especially in a buyers market.
The "Hubbard" portion of the agreement must have the following two items included in the verbiage:
1. Final Hubbard contingency sale date- That is, the deadline for the buyer to secure a purchaser for their home, so they can move forward with the sale on the home that they wish to purchase.
2. A deadline for the buyer to remove the "Hubbard" contingency if another offer comes in during this period.
There is no national standardized form for this, nor are there generally accepted statewide forms for "Hubbard Clauses"- rather the forms which are used tend to be much more regional or generated through independent franchises. There are a good number of agents who just do not like to work with Hubbard Clauses at all, which I do not understand, but it is what it is. I think that if an offer comes in a home where I represent the seller, that we should absolutely listen to it. It's kind of like a back-up offer without having the main one. As long as all the conditions and terms of the sale are acceptable and we can still market the house, it would be foolish not to entertain such an offer. When I represent the buyer, and if that's the only way they feel comfortable moving forward, I believe it's my fiduciary responsibility to help them get the house that they want.
Buyers:
If your home is not already on the market, be prepared to list it THE SAME DAY that you place your offer in on the property that you wish to buy. You do not have to list it if the homeowner does not wish to entertain your offer, but if they are willing to negotiate with you, it is of extreme importance to be ready...ready.... ready.
I have to go on record, here- this is not the most cost effective way to purchase a home. Sorry, but it's true. If this is what makes you most comfortable, I am all for that, and will do as you wish. Often times, you will end up paying a premium for the right to purchase a home in this manner, and you may end up selling your home for less money to satisfy the Hubbard Contingency within the time. allotted.
Sellers:
I do not really see a downside to sellers as long as an acceptable Hubbard addendum allows you to continue to market the home as ACTIVE, and not change its status to anything else. (See FAQ's below) Provisions must be made for the instance of another offer coming in during the period that the Hubbard is in effect. Usually, giving a buyer 2 or 3 business days to remove the Hubbard Clause is sufficient, so if they are comfortable removing the clause, you will sell it without the contingency, or if they cannot remove the Hubbard, that you are free to sell it to another party. There are no guidelines as to price or terms for accepting another offer unless they are written into the addendum itself. You must just concern yourself with the time frame.
Hubbard Clause General FAQ's
- Hubbards may include unique terms or conditions.
- Understand that homes are shown with a signed Hubbard Clause agreement in place.
- And then, some agents will NOT show homes that have a signed Hubbard Clause
- Some buyers choose to include a Hubbard Clause because they would actually qualify for your home purchase without selling their home, and just do not want to carry two mortgages.
- Hubbard clauses can be extended by agreement from both parties.
- Regionally, we work with binders first and then formal contracts are prepared within two weeks- Sellers may decide NOT to have their attorneys draw contracts until the Hubbard Clause is removed.
- The buyer can withdraw their offer entirely with no penalty, unless expressly written in the contract.
- This agreement seems to be more binding performance wise to the seller than it is to the buyer.
- And in case you were wondering, the name has nothing to do with Old Mother Hubbard, (despite the shoe)
If you have a question about buying or selling Real Estate in Fairfield County, and are in need of representation, I invite you to contact me, and if you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.