Kinda like "Which came first, the chicken or the egg?" Do you find the home you want to buy and then put your home up for sale or do you put your home on the market before you start looking?
Let's assume you don't have to move, You just want a bigger, smaller, more expensive, less expensive home, or a different location. First you want to make sure that the home you desire is out there. So, you decide to start with a home search. Amazing - there it is - the home of your dreams...but...you haven't even taken the first step to listing your house and you need to sell it, in order to buy.
Okay, maybe the way to go is to make sure you can sell your house, before you start thinking about your new dream home. But what if a buyer appears the first week and you haven't even begun to identify the home you want to buy?
You get the picture. Making both sides work together can present an interesting balancing act.
You don't want to miss buying the great listing, that just came on, but you also don't want to sell your house and have no where to go. What you want is both transactions to happen together.
In the not too distant past, buyers were falling over each other to outbid the competition and purchase everything that came up for sale. Ah, the good old days - a red hot "Seller's Market." But, times have changed. Listings are now taking 80, 90 100 days or more, to come up with an offer. Prices are being reduced once, twice, maybe three times before they become enticing enough to get buyers to "pull the trigger."
So, what's the solution? It may be time to dust off the old Hubbbard Clause. Exactly what is a Hubbard Clause?
A "Hubbard" is a contingency, added to the offer to purchase. If the seller agrees to it, it will be added as a property sale contingency or addendum to the sales contract. The contingency states that the purchase is contingent on the Buyer selling his/her property (typically, their current home.) There will be a stated time period in which the sale must take place. While the Hubbard is in effect, the Sellers can continue to market their home and should they come up with a legitimate offer, the Buyer is given the option of removing the contingency (usually within 1-3 days) and proceeding with the purchase.
During the "Hot" market, many sellers would not accept a Hubbard. In effect, they felt it was taking their home off the market. Often, agents would not show a Hubbard property or discouraged their buyer clients from making an offer on a Hubbard, citing that it would only be used to up the ante on the first buyer.
In the current environment, the Hubbard Clause may serve to facilitate the sale of both properties. The sellers know that the buyers want to make the purchase and therefore, have the incentive to be more negotiable in the sale of their present home. Sellers also have a better opportunity for receiving subsequent offers. An astute agent will advise his or her buyer clients that, although the first buyers will be given the option to remove the contingency, if they do not have offers on their home, they may not be in a position to do so. Thus, giving the second buyers a reasonable shot at making the deal.
Copyright © 2008 Marilyn Katz, WestportCTProperties.com, All Rights Reserved, Get the Hubbard out of the Cupboard - buying and selling in a "Buyer's Market
 |
|
|
Working with buyers and sellers, downsizers and upscalers, relos and renters: Whatever your real estate need, my goal is to make your transaction as smooth as possible.
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2009 ActiveRain Corp. All Rights Reserved
Awesome article!! Very timely. I've seen a few this year, not as common as years ago, but all of them ended up working out. Happy buyers and sellers. What more can one ask for?
I see this clause more and more in move ups. It will be a great tool forr the people that are motivated to buy but have to sell first.
Marilyn, I agree with everything you say about a Hubbard Clause. One word of warning is that I suggest reading them carefully as they are not all the same. I saw one a while ago where the buyer would have to MATCH a higher offer on the property should another buyer offer more than the buyer with the Hubbard. Good post & great reminder to use a Hubbard.
It's all about what is happening now. Many sellers still don't get it. Now it's the buyers turn. I mostly list homes and only work with buyers who are from my listings or are referred to me. It's a two way street and some just don't want to believe its now a buyers market...just as when it was a sellers market and the buyers were at the mercy of the sellers if they really wanted the home. I just don't think the theory will work most of the time at least in my market. I'm all for working together but again .....each side wants to do whats in their best interest. Sellers want as much as they can get and buyers want as much as they get. It's a two way street.
SELL FIRST - I tell them all the time. If you look at homes and find one you like, you will want to buy it now and get stuck with two!
Marilyn, I remember a time not that long ago when buyers would look and buy without their homes being sold (I did it twice myself) without a worry about the back up house selling, but not so anymore. Buyers today are much more afraid of owning 2 homes, and in this market, how can you blame them or encourage them to do it? Probably time to revisit those contingency contracts.
Hi Marilyn - We call them Hubbard clauses in Maine, too. I find it is the opposite here - In a Seller's market, Sellers will sometimes accept the Hubbard clause because the buyer has a good chance of selling their house and completing the purchase. In this Buyer's market, they are less common now here. Usually, the Seller only accepts on properties that have been on the market for a long time and there are no other offers. We have a lower sucess ratio (completing the sale) on these clauses in this Buyer's market.
Congrats on the feature. Good topic for discussion!
The Hubbard Clause? I never knew it had a name.....I found your post very interesting and totally agree.
This is a part of our standard sales contract language and usually the buyers have 72 hours to remove the house sale contingency or get out the way for the next buyers to become primary. The advantage in the Ann Arbor Area Board is we have a category for this accepted offer so other agents know there is an accepted contract with a limited time clause LTC, so now we will get showings from buyers who have no house to sell, we ENCOURAGE showings from this kind of non contingent buyer. The house stays active on realtor.com too. info@KathyToth.com
I am just into blogging so just read your blog this morning and this Hubbard "thing" sounds pretty good. Do the buyers have to put down some money in order to get this opportunity granted to them? I see why agents might not show these properties, but then again, I would. Thanks for this information!!!
Thanks for the great informative post! INteresting concept.
We don't call it 'Hubbard Clause' here, just 'contingent upon sale of home.' But, these type contracts are being accepted more in this selling climate, with a 24 or 48 hour 'kick out' clause.
I showed a house recently with a sale of home contingency, whereas last year I might have explained to the buyer about the contingency conract, and we would have agreed to look at it last.
I think something else to emphasize to sellers is that 'to buy low, you may have to sell low.' That makes theoretical sense, but you can see them 'gulp' when they actually decide to take the slightly low ball offer.
Sarah Rummage
Nashville TN
Sarah@Nashville-Homebuyer.com
I see nothing wrong with contingency clauses in this market. The Hubbard clause makes perfect sense at a time when people are losing on their investments and have less ability to handle the burden of two mortgage payments for even a month or two. Both the selller and the buyer stand to benefit if the contract is reasonable and acceptable otherwise.
we have contigent sale addedums too and it's now becoming more popular choice for sellers to accept, but puts the seller's agent in a new position to do more research on the buyer's home - if it's priced correctly, gone through inspections, etc.
The contingency clause is much easier to "sell" to our sellers now that the contingent homes are allowed to appear among our active listings. The house is still active on the market. It wasn't always that way in our multilist system.
Many realtors don't show contingencies, and in reality I even shy away from them when I am sorting through my listings. However, in my brain its a win-win for everybody.
This gets particularly tricky when we are dealing with farm and ranch property. With a commercial operation people can sell off their livestock and buy again after the move. Plus, as investment property the above scenario is even preferable because you have already identified the property you are buying (if you are doin a 1031 tax deferred exchange).
However, in rmost residential situations, people have a tendancy to consider their animals as pets, i.e., the animals all have names. It is much harder to find temporary housing for a big crowd if you sell your house before you find another.
I am working with a family that has 29 walking horses. If I can find a place close-in that is within their budget, then they will consider listing their place way out in the country. Then I will be blogging and asking if anyone is looking for a beautiful horse place with a clear-running trout stream.
We have fewer transactions but each one seems to cause a domino effect which is good!
I don't believe I've heard that phrase before, but we recently had a transaction with not one, but two. Move-up buyers from the low to middle...middle to upper. Uppers were relos. It works. Anything goes! As long as its ethical and makes sense anyway.
Thanks for the information everyone! I hope this market turns soon!
We have a home sale contingency line on the stanadard contract in Wisconsin. You simply check the box and fill in a few additional details. It gives the seller and buyer some options. If the seller finds another buyer, notice is given to the origianl buyer under contract. The buyer has a number of days or hours to waive the home sale contingency or the contract is null and void. If the buyer waives the contingency, the buyer faces the possiblity of paying two mortgages.
There are some details to watch out for in this process.
Choice of closing date.
Inspection contingency
Loan commitment
When do all these dates begin and end? Do you really want the buyer spending money on inspections, appraisals and loan fees if they may have to waive the home sale contingency?
This is a very good time for buyers that are moving up. Let's say they take a hit of $10,000 on their existing $150,000 house but purchase a $250,000 home that accepts an offer $20,000 less than market value. The buyers just saved enough money to pay the sales commission, closing costs and moving expences.
I noticed I was one of the ones who commented on this blog the first time around and mentioned the danger of contingency clauses. Our contract also says that they have to remove the CONTINGENCY of selling their home. If the buyer's agent is so willing, he can advise them to remove the CONTINGENCY on selling and it is still contingent upon financing. This will make the seller lose that buyer through "dirty pool" you could call it. All's fair in love and war and real estate? NOT. But it can happen and has happened.
When seller's accept this contingency here, we have to show it as under contract, and showings stop. So I always take a look at how the buyer's house is being marketed and do comps, then discuss the agent's plans to get it sold. Normally, sellers won't accept this contingency unless the buyer's house is also under contract.
In the current market the seller does not believe the buyer can get their home sold.
In our market we have to change the MLS to show the listing is "under contract with contingencies". While showings don't necessarily stop, they do slow down. So this is a tricky proposition.
This is a good solution to the conundrum though I've never heard it referred to as the Hubbard Clause.
I didn't know there is a name for this --- but we do have a form specific to this situation and we call it the Contingency of Purchase.
My buyers liked my duplex listing so much that they wrote an offer on it contingent to their selling their own house. The duplex owner is so cooperative and agreed to the contingency clause. So I listed the buyers' house and in less than 2 weeks, we had a contract. So we made all the timelines concurrent for both the house and the duplex.
Yes, it's a bit more complicated than a regular sale, but it's working out fine. We close on both properties Dec. 11 --- so that's 3 sides for me. Makes for a Merry Christmas :)
I agree that a Hubbard Clause can be a good option in this market. I always suggest looking at homes with a "hubbard" contract to my buyers and they've actually bought them because the 1st buyer could not remove the contingency. Closed one this year that worked out for both parties very well. It's a bit nerve-wracking but can work for everyone. Our MLS has a status of "hubbard" so agents can continue to show those homes. I can't see any reason why an agent would not show the house if it's a good match for their buyer.
Kris- Unfortunately, they don't all work out, but in this market, it's definitely worth a try
Laura- once the sellers have found a house they want to buy, it helps motivate them to be negotiable on the house they are selling
Bob and Richelle- It's always a good idea to carefully read, before signing anything
Neal- the initial reaction is often reluctance, but if explained carefully it can help move the process along
Richard- That's what this is all about - not getting stuck weith owning two homes
You can also find a house, dont buy it, put your home on the market and get it sold with the condition that you have 1 week contingency to finalize a purchase of the home you want to buy. This puts you in a stronger buy position (having your home sold vs not). Both ways work.
Barb- I think the times of buying before you sell are over, for the forseable future
Margaret- In the seller's market, the only Hubbard's I saw were for very limited time frames. Seller's did not want to delay the sale of their homes
Diane- As Shakespeare might say...A Hubbard by any other name...is still a contigency
Kathy- the MLS here, also has a designation for Hubbards
Suzanne- the sales contract is like any other that has a contigency. If the buyers homes hasn't sold by the designated date, they can either remove the contigency and complete the sale or void the contract, with no penalty
Kristin- Glad you found it interesting. It's one more tool we can use to move the transaction along
Sarah- In the "seller's market", the contigency period accepte tended to be much shorter
Patricia- I agree. It will just take a bit of educating, not only the clients, but also the agents
Sandy- As we any deal, we want to make sure the other side (including their property) is qualified, before we accept the offer.
Debbie- Glad I'm just dealing with houses and not horses :-) Good Luck!
I'm not finding those clauses too productive in my market. It makes the buyers very anxious because they're worried that the home they want to purchase may be sold out from underneath them while they're trying to sell their home. I think it causes a lot of stress for both sides.
Jean- It works great, as long as the first domino falls.
Suzanne- It is totally ethical and legal. It's just another way to buying/selling process
Allen- You're quite welcome. I think we're all anxious to see this market turn
Dennis- Once the buyers have spent money on inspections and are emotionally committed to their new home, they are usually more motivated to sell their existing home
Barbara- Thanks for the re-visit. This was reposted in response to 'Rich's invitation to take a weekend Mulligan
I haven't had much luck with the Hubbard Clause but I know other agents who have. It certainly gives the buyers and sellers an option. We have to do whatever it takes in the market we are in to make things work for both sides of the transaction.
Joetta- In some CT MLS's, they also list it as under contract. Makes it a bit more difficult to get seller's to accept.
Michael- If they don't think the buyer can sell their home, what makes them think they can sell theirs? :-/ That's where the role of the real estate agent comes in.
Hollis- If the seller hasn't had any other offers, at least they have a motivated buyer
Christine- Whatever it's called, it still boils down to accepting the offer with a contigency. The seller can control the situation, somewhat, by determining the time frame they are willing to accept
Pacita- That's the ultimate goal in accepting the contigency. Congatulations on your deals. Nice Job!
Lisa- It can be tricky, waiting for the first sale to set off the chain reaction. Agents need to understand the process better, so they can calm and advise their clients.
Dave- That's another option
Erika- without the Hubbard, there's an even greater chance that the home they want to buy will be gone
Pat - I know, first hand, that it doesn't always work. I lost a sell and a buy, when the first buyer backed out.
In my secondary home marketplace, these kinds of contingencies are becoming very common. It's definitely a "protection" in a buying/selling moment.
I'm a proponent for selling first...get an idea but only an idea and qualifying info for what you want and then sell your current home...
I have never heard it called the Hubbard clause. It does work. My seller accepted an offer with a "time clause" We still had people looking at the property regularly had at least two additional offers, neither of them woked out due to a low offer and another offer was too high and my seller didn't think the home would appraise for the high offer price, the contingencies combined with the high offer was actually lower than the original offer, but the home finally sold after the buyer sold her home. The home was shown regularly even with the time clause. It was amazing how many realtors needed an explanation on what a "time clause" was.
Yes, we are using this clause locally in the current market, but I have never heard it referred to as the Hubbard clause.
Li- It gives the buyer some real numbers to work with. They know what the new house will cost them, which better determines how much room they have for negotiation on the sale of their house.
Sonja- That's certainly a more traditional approach
Randy- The key to this is educating the agents. For too many of them, Hubbard clause or Property sale contigency is simply something they memorized once, for a single question on their real estate exam.
Interesting information - thank you. Kathy
Sounds like a home sale contingency with a kick-out clause. Never heard it referred to as a Hubbard. Is that perhaps a local/regional term? Here in the Balt/Wash area, those types of contracts were few and far between during the Seller's Market, but I am seeing them more these days. One big negative is that even though after accepting a contract contingent on the buyers selling their current home, the Seller's property no longer shows up as "active" in MRIS, our regional mls system. The property converts to Cntg/KO, (contingent with a kick-out clause) and since IMHO most agents only use the default "active" parameter when doing searches, Seller's house won't show up in most searches for available property.
Vickie- It basically is a home sale contigency clause. In some markets (e.g. CT) it is known as a Hubbard clause
Kathy- You're welcome
Larry- I think buyer's agents will have to learn to broaden their scope in this market. That includes being prepared to deal with short sales and foreclosures, as well as utilizing all the tools available to enable the transaction, such as offers with home sale contigencies
I've never heard it called a Hubbard clause. Our state has a standard addendum for this contingency. I have been involved in a couple of them and my clients came out on top both times. Seems like I remember our form stating that if the purchaser waived the contingency, they were also waiving the financing contingency.
Pam- In my market, the home sale contingency (Hubbard) clause is separate from the mortgage contigency. You can remove one without the other.
This is not always the best thing. I made the mistake of letting the sellers except a full price with closing cost offer with a home sale contingency and property inspection contingency to be peformed within 7 days of buyer getting an offer. We excepted the offer in April with a home sale contingency, buyer received an offer on their current home in July, my sellers were happy to receive this offer because the home had been on the market 6 months in April. We did continue to market the property as Active with contingency received showings but no offer. In July 5 days after removal of home sale contingency the buyers performed a home inspection and submitted a release stating they no longer wanted the home. There was nothing major wrong with the home, the sellers agreed to fix all items on home inspection if buyers would continue. Buyers released contract and we had no recourse but to return their earnest money. Home goes back on the market and was showing as a 9 month listing (not good). After Nov 1st, a few more crazy offers and no more ratified contracts I suggested sellers plan to take property off the market and re list next year.
WHAT DID I LEARN?
So if you do except a Hubbards Clause, require the buyer to perform home inspection up front at time of ratification not after removal of home sale contingency. And any other contingencies up front.
One problem with contingency to sell a home (and it taking months) is that the buyers get tired of the house, or find another house that they like better and want to get out of the deal for any little reason.
DeeDee- The home sale contigency should not be used to delay other contigencies, e.g. home inspection, mortgage, contract. Those should be done in the usual time frame.
Sarah & John- There is a contract in place. The buyers can walk away if their house hasn't sold. There is also a time frame on the contigency. It is not open ended. It can be as short as days and, even in a slow market, usually no more than 2 months.
Second time reading your post and it's a good one. I have yet to write a Hubbard Clause into a contract but you never know when it will come up so thanks for the info.
Kelsey- In this market, I think Hubbard clauses may become more prevalent. Of course, they don't always work.
I had a double deal (sell and buy) go south because the first buyer couldn't sell her house at her asking price and rather than aggressively negotiating, let the Hubbard expire. If the first "domino" doesn't fall, all the subsequent deals are off.
I came across this looking for creative solutions. Great post.
Mike- In this market, we have to look at all possible ways to get the deal done. Thanks for stopping by.