SECURITY OF SELLING YOUR HOME FIRST COULD COST YOU THE ONE THAT YOU WANT

Real estate agent Robin Gebrian considered the recent house hunt a heartbreaker. Her clients, a couple in West Hartford, wanted to buy a new home but couldn't afford to do so until they sold their current residence.

One by one, three offers on three difference houses were rejected, after the sellers received other bids from buyers who didn't require a Hubbard clause.

"It was a heartbreaker because they fell in love with that third house and they didn't want to lose it,” said Gebrian, an agent with Coldwell Banker in West Hartford. "We finally put their house on the market, and when it sold, they moved into her parents' basement until they could find their next home.”

Contingencies are becoming more common in today's real estate market, which is shifting in favor of buyers, because the number of homes listed for sale far outpaces the number of buyers.

But contingency clauses can be confusing, unsettling or simply an unknown for both buyers and sellers negotiating in a changing marketplace.

Simply put, a contingency or Hubbard clause is part of a legal sales contract that protects buyers from having to close on the purchase of a new home until they have successfully sold their current home.

The clause sets a specific number of days a potential buyer has to sell his home, typically 30 to 60 days. During that time, a seller can still market their home and accept another offer. If another offer is received, the buyer with the Hubbard clause has a set amount of time to prove he can buy the home without the contin-gency, usually 24 hours to three days, even if the second offer is for more money.

During the strong sellers' market of recent years, contingencies were rare, because buyers were confi-dent they could sell before closing on their next home. That has all changed. The national average time it would take to sell the current supply of houses on the market is 8.4 months, according to the National Association of Realtors.

Still, many sellers and even some real estate agents like to avoid using contingencies.

"Most sellers don't want to be tied in to another buyer's purchase,” said Janet Tanner, of Re/Max Pre-mier Realtors in West Hartford. "It creates a domino effect. If a buyer is purchasing a property and it's con-tingent on their house selling, then everything falls on each transaction down the line. It keeps everything in flux.”

Tanner says she usually advises her clients not to use or accept an offer with a Hubbard clause.

"I think it basically takes the house off the market,” she says. "It reduces the marketing because other buyers know there is already another offer out there, and that buyer has already put out money for home in-spections and applied for a loan."

And if the deal falls through a month later, the seller is back to the beginning of a search for a new buyer.

There are always people who think sellers will take a Hubbard, but it is usually a show-stopper,” Ge-brian said. “That's the No. 1 thing I have to counsel people about: Can you do this without having to sell your house first?”

Linda Frankl, an agent with Re/Max Advantage in Avon, said contingencies "are a double-edged sword for both parties."

"On one hand, sellers know they have someone who is interested and at what price, but they have no idea if the other house will sell,” said Frankl, who is also on the legal forms committee of the Hartford Board of Realtors. “For the buyer, there is a cash outlay for a home inspection and securing a mortgage, and someone could still buy the house out from under you. It's a very tenuous situation.”

But Jeannette Punsoni, an agent with ERA Broder Group, says that in most cases, a Hubbard clause is nothing to worry about.

She recently worked with a couple who wanted to downsize into a new home in the Hartford area, but were concerned that their existing house would take months to sell because it was large, priced above $600,000 and located on a busy street.

“They found a smaller house, and we presented an offer with a Hubbard clause,” Punsoni said. “We explained the situation to the sellers, and the offer was accepted.

“I don't think there's any reason to be worried about a Hubbard, as long as you state everything clearly and continue to market the property.”

Agents said sellers most likely to accept a Hubbard are those who have had their house on the market for a significant length of time with few or no offers, and those who are not in a hurry to sell. They said buyers who need to use a contingency can sweeten their deals by offering the asking price or higher, even better, offering more earnest money with a portion of it nonrefundable.

“Additional earnest money will show that you're into making things happen,” one agent said.

Contingencies can be a headache for developers, too. Most lenders won't count contingent offers as a legitimate purchase agreement, which is used to determine what the bank will set the interest rate at and when construction can begin.

“Contingencies have gone from being something of a nuisance to being a deal breaker for a lot of sell-ers,” said Scott Parkin, marketing director for S.R. Hoffman Associates in Minneapolis, which handles mar-keting for several condominium projects.

“They know that when someone has a home to sell, it's a crapshoot if that home is going to sell in any reasonable time in this market.” Parkin said some developers are even targeting buyers who are unlikely to make a contingent offer.

“If you can bombard an apartment building with fliers about your new construction project, those renters won't need contingencies.” Parkin said. “In this market, offers without contingencies are golden.”

While contingencies can complicate a deal, they can also motivate buyers.

When Amy Hyatt-Blat recently bought a house in south Minneapolis with a contingency, she immediately lowered the price of the condo she was trying to sell, hung color notices in coffee shops and at work, sent out personal invites, and kept her condo in showing condition every day until it sold.

“I was tempted [to make a non-contingent offer],” said Hyatt-Blat, who lost out on one deal when a seller would not accept her Hubbard clause.

“But what I wanted more than that town house was peace of mind. It's better to lose a place and wait than to roll the dice and gamble taking on a second mortgage."

via Hartford Courant
Syndicated with permission.