A Hubbard is a specific type of real estate contingency clause used in purchase agreements, primarily when a buyer needs to sell their current property to finance the purchase of a new one. It allows a buyer to make an offer on a property contingent upon the successful sale of their existing home, while providing the seller with the flexibility to continue marketing their property.
This clause is designed to protect the buyer by allowing them to secure a new home without the financial burden of owning two properties, while also protecting the seller by preventing their home from being tied up indefinitely by a buyer who might not be able to complete the purchase.
Key Aspects of a Hubbard Clause
The Hubbard clause outlines specific responsibilities for the buyer and typically includes provisions for the seller.
Buyer's Obligations
When a Hubbard clause is part of the agreement, the buyer undertakes several key responsibilities to ensure the sale progresses:
- Prompt Listing: The buyer promises and agrees to promptly list their current property for sale with a real estate broker.
- Diligent Efforts: The buyer must use diligent and best efforts to secure the sale of their property. This means actively working with their broker, making necessary adjustments (like price changes or repairs), and being responsive to potential buyers.
- Seller Communication: The buyer is required to keep the seller fully informed of their efforts and the status of their property sale.
Seller's Rights and Options
While the buyer's property is on the market, the seller's property remains "active" with some specific conditions:
- Continued Marketing: The seller is typically allowed to continue marketing their property and showing it to other potential buyers.
- Accepting Backup Offers: The seller can accept other offers, often referred to as "backup offers." If a non-contingent offer (or a more favorable offer) is received, the Hubbard clause often includes a "kick-out" provision.
- The Kick-Out Clause: This provision typically gives the initial buyer a specific timeframe (e.g., 24, 48, or 72 hours) to remove their Hubbard contingency (meaning they commit to buying the property regardless of whether their home has sold, possibly by securing alternative financing) or cancel the contract. If the buyer cannot or chooses not to remove the contingency, the seller can then proceed with the backup offer.
How a Hubbard Clause Works in Practice
Here's a simplified breakdown of the process when a Hubbard clause is in effect:
- Offer with Contingency: The buyer makes an offer on a home, including a Hubbard clause that makes the purchase contingent on the sale of their current home.
- Seller Accepts: The seller accepts the offer, understanding the contingency. The property is now "under contract with a Hubbard contingency."
- Buyer Lists Their Property: The buyer promptly lists their home for sale as agreed.
- Seller Continues Marketing: The seller's agent continues to market the property and may receive other offers.
- Backup Offer Received: If the seller receives another acceptable offer (often a non-contingent offer), they can invoke the "kick-out" clause.
- Buyer's Decision: The initial buyer is notified and given the agreed-upon timeframe to either remove the contingency (commit to buying) or release the seller from the contract.
- Outcome:
- If the buyer removes the contingency, the contract becomes firm, and the backup offer is dismissed.
- If the buyer cannot or chooses not to remove the contingency, their contract is terminated, and the seller can move forward with the backup offer.
Benefits and Considerations
Using a Hubbard clause presents distinct advantages and disadvantages for both parties in a real estate transaction.
| Aspect | Benefits for Buyer | Considerations for Buyer | Benefits for Seller | Considerations for Seller |
|---|---|---|---|---|
| Financial Security | Can make an offer on a new home without the pressure of having to carry two mortgages or risking a bridge loan. | Faces the risk of being "kicked out" if a stronger offer comes along, potentially losing their desired home. | Keeps their home on the market and can continue to seek other offers, including non-contingent ones. | The sale is less certain and may take longer than a straightforward, non-contingent sale. |
| Market Flexibility | Provides time to sell their current home in a potentially less rushed manner. | Timeframes for the contingency can be tight, especially if a kick-out clause is triggered. | Avoids taking the property off the market entirely for a buyer with an uncertain ability to close. | May deter some buyers who prefer a property without existing contingencies, limiting the pool of potential offers. |
| Negotiating Power | Allows them to enter into a contract, even if their funds are tied up in their existing property. | May have to act quickly and decisively if a kick-out clause is activated. | Can accept a backup offer, ensuring they have an alternative if the initial buyer cannot perform. | The property may remain on the market longer, requiring continued marketing efforts and potentially extended carrying costs. |
Hubbard clauses are most common in real estate markets where inventory is ample or when sellers are more flexible. In highly competitive seller's markets, they may be less appealing to sellers. Understanding this contingency is crucial for both buyers and sellers navigating complex property transactions. For more information on real estate contingencies, you can refer to general real estate contingency definitions.
