Demystifying the Hubbard Clause: Understanding the contingency to Sell in order to Buy

Hubbard Clause

In the dynamic Rhode Island real estate market, where sellers often face multiple offers, having a contingency to sell your current home before buying a new one can make your offer less attractive. Preparation is the key to success and I’m here to help you to understand your options. If you’re planning to upsize, downsize, or relocate and need to sell your home first, starting the process early—up to a year in advance—can significantly enhance your position.

Steps to Prepare for a Smooth Transaction

1. Start with a Real Estate Agent: Meet with a real estate agent early to understand the current and anticipated market value of your home. Discussing the seasonality of the market will help you determine the best time to sell. Since you’re reading this, I can presume that there’s a good chance you and I will work together but if you’re not working with me I hope that you’ll take the time to make sure that you’re working with the right Realtor—someone like me who goes above and beyond to provide you with guidance and insight to make sure you’re making well-informed decisions!

2. Financial Strategy Session with a Lender: Meet with a trusted lender to explore you financing options, you need to make sure that you understand your purchasing power and the different strategies available, such as bridge loans or recasting your mortgage. Maybe you don’t have to include a Hubbard Clause! Maybe you can briefly carry both mortgages—gather the information so that you understand all of your options so that you can make the decision that works best for you.

3. Get Your Home Ready: Discuss what needs to be done to make your home appealing. This includes staging, repairs, updates, and finishing any pending projects. A well-presented home sells faster and often for a higher price.

4. Conduct a Pre-listing Home Inspection: A prelisting home inspection can uncover any potential issues that could derail a sale later. Addressing these issues beforehand positions your home more favorably and can prevent buyers from backing out. Imagine the scenario where we have a Hubbard in place to buy your dream home only for the buyer of your current home to back out of the contract due to inspection items that we may have been able to get in front of before the house is under contract! This could cause all of the cards to fall.

5. Understand the Listing Contract & Selling Process: Familiarize yourself with the terms of the listing contract with your agent as well as what to expect for the sale process–the steps to getting your house listed, what happens once it’s on the market and showings begin, what the offer process is like, and the steps and timeline you can expect once a buyer is under contract.

6. Schedule Professional Photos: Arrange for professional photos as soon as your home is ready. If necessary, schedule exterior photos later depending on the season to showcase your home in the best light.

Deciding on Your Strategy

With your home prepared, you need to decide on your selling and buying strategy:

    • Option 1: Sell First with a Subject to Suitable Housing Contingency Get your current home under contract first, with a contingency that allows you some time to find suitable housing. This may seriously limit your options as a buyer as we will most likely have a set period of time that a buyer is willing to wait. The buyer could back out at any time and it will still require a contingency to sell your home when writing an offer to purchase your new home. The seller may be willing to consider it as an option, depending upon other offers and terms, since you already have your house under contract. It is preferred that the Buyer for your current home conducts inspections right away.

 

    • Option 2: Buy First, Then Sell Make an offer on a new home with a timeline for listing your current home and a deadline for obtaining a buyer. This option can be riskier but allows you to commit to a new home before selling. If we have this contingency in place (called a Hubbard Clause) we will have to provide a specific date that the property will be listed on MLS and a specific date by which we will have the property under contract. During this period, a Seller could accept another Buyer’s offer, they would be required to provide us with notice and we would have a specific time period by which we have to either release the contingency, get your current property under contract, or release the purchase contract. If you are choosing this option we need to be prepared to list your property AS SOON AS we have a signed contract for your dream home. Time is of the essence and the clock is ticking! This is why having all of your listing documents signed, your house prepared, and photos completed ahead of time is so important–we may need to list the property within 24 hours of the accepted offer! And we will likely need to secure a buyer for your current home within one week! It all depends upon the current market.

Both strategies have their pros and cons, which should be carefully weighed with your real estate agent.

Alternative Solutions Without a Hubbard Clause

If the idea of managing two transactions with a Hubbard Clause seems daunting, consider these alternatives:

      • Bridge Loans or Similar Programs: Explore loan options that allow you to purchase your new home without selling your current one first. I have a lender that may have the perfect solution: AnnieMac Loan
      • Recast Your Mortgage: In your strategy session with your lender you should find out if you would be able to buy without selling. That may mean that you buy with a much lower down payment. Once you have closed on your new home and you decide when you want to list your current home—perhaps you want to do that right away and close on the same day, or perhaps you want to give yourself a few weeks to make the move. Once you have sold your current home you can put as much down on your new home as you choose and recast the loan—most mortgage companies allow this option one time but be sure to discuss this scenario with your lender to make sure you understand the process.
      • Leaseback Options: Negotiate with the buyer of your current home for a leaseback option that allows you to stay in your home for a set period after the closing. You would likely pay the buyer market rent or at least their monthly mortgage amount.
      • Temporary Housing: If a leaseback isn’t possible, look into temporary housing options while you transition between homes.

Why It Matters

Even if you’re not currently in a buy-sell bind, understanding the Hubbard Clause can give you a competitive edge. It’s essential for crafting offers that meet both buyer and seller needs, ensuring everyone involved has a clear understanding of the timelines and commitments.

Whether you’re navigating a simultaneous buy and sell situation or just aiming to deepen your real estate knowledge, incorporating these preparations and understanding the strategic use of the Hubbard Clause can make your journey smoother and more successful.

Feel free to reach out if you have more questions about buying or selling in Rhode Island, or if you want to discuss how these strategies can be tailored to your specific situation. I’m here to help guide you through every step of your real estate journey!