If you have to sell your current home, before you buy a new one, you may want to think about including a hubbard clause in your purchase agreement. Consider this your guide on just the subject. Below we have included information on what the hubbard clause is, and how it shapes a real estate transaction. As well as what you need to consider before including one of these contingencies in your offer. Keep reading to learn more.
What is a hubbard clause in real estate?
In today’s real estate industry, the hubbard clause is more commonly referred to as a “home sale contingency”. Ultimately it is contingency clause that is used if the buyer wants to sell their current home before they purchase a new property. The clause essentially gives the buyer a certain amount of time to find a buyer for their current home, before they move forward with purchasing the new property. In the event that they can’t find a buyer, they have the option to terminate the contract.
Since the current real estate market is so competitive, this provision is hardly ever used anymore. In fact, including one of these clauses in your purchase agreement, is generally thought to make it weaker. Whenever possible, buyers tend to sell their property before trying to buy a new one, or try to get a bridge loan. Which can help them with financing their purchase while they search for a buyer for their current home.
In addition, it’s important to note that a hubbard clause in real estate is different from a mother hubbard clause. Which is a general conveyance clause that is often used in the oil and gas industry.
How to create a home sale contingency for a real estate contract
It’s important to go over how this contract is written in an agreement of sale. While you won’t need to worry about the exact wording as a buyer, it’s important to understand what this clause consists of. So that you can ensure each element of it works to your benefit. To that end, this clause typically has a few separate parts:
The length of time the buyer has to market their current home
With a hubbard clause, the buyer is given a set amount of time to market their current home for sale. If they are able to find a buyer for their home within that time, the contract moves forward. However, if they are not able to find a buyer during that time, they are left with three options. They must either ask for an extension, choose to move forward without selling first, or back out of the contract entirely.
This timeframe is put into the agreement so that the contract does not linger on indefinitely. As the buyer, it’s important to think carefully about the timeframe you request. It needs to be long enough that you will be able to find a potential buyer for your home, while still being short enough for the sellers to accept.
The buyer’s right of first refusal
A key component of the home sale contingency is that the sellers are typically still allowed to continue marketing their home while they are waiting for the buyer to be able to move forward. If they should receive another offer during that time, the original buyer is given the right of first refusal.
A right of first refusal means that once the seller makes it clear that they have another offer in hand, the buyer will then be given the option to decide to move forward with the contract without selling their home first or to exit the contract entirely.
Pros and cons of working with a hubbard clause
Similar to any other contingency in a real estate contract, there are pros and cons to working with a hubbard clause. We’ve laid them out below for your consideration. Read them over so that you’ll have a better idea of whether this clause is a good fit for your transaction.
For the buyer
- You don’t have to worry about carrying two houses at once. This clause essentially gives you extra time to sell your existing home before you buy a new one.
- You have the option of walking away from the deal. If you can’t find a buyer for your current home, you can simply walk away from the contract with your security deposit in hand.
- You might get beat out by a better offer. Sellers don’t tend to accept offers with Hubbard clauses if they can avoid it. This is due to the the lack of reassurance that the buyer will be able to purchase the home. If another offer comes along, your offer may be overlooked.
For the seller
- You can continue marketing the property. If you accept an offer with a Hubbard clause in it, you can continue marketing the property until the buyer decides if they are able to move forward.
- The buyer can walk away from the transaction. If your prospective buyer is unable to find a buyer for their current home, they have the right to exit the contract. Which means that you may have wasted your time and energy negotiating with them.
The bottom line
At the end of the day, the Hubbard clause is a bit of an antiquated concept in real estate. If you want your offer to stand out in a competitive market, there may be better ways to do so. Still, it’s important to keep in mind that the hubbard cause does exist, and it may be used again if the market slows down. With that in mind, use this post as your guide to the hubbard clause, and how it works in a real estate transaction.