The recent arctic blast has sadly left thousands of homeowners across the state with busted water pipes, in many cases creating extensive property damage. If you’re under contract to buy or sell a home that has been damaged, you may be wondering how to proceed. Texas real estate contracts contain language to address this. Look for Paragraph 14 in your TREC contract regarding casualty loss.
THE SELLER SHOULD REPAIR THE DAMAGE PRIOR TO CLOSING
The TREC contract states that if ANY party of the property has been damaged or destroyed, the seller shall restore the property to its previous condition by the closing date. This certainly goes for major damage, but applies to minor damage also (think holes knocked into the wall while moving out, or any other minor damage). If the seller is able to make the necessary repairs by the closing date, the sale will proceed as scheduled.
We recommend that the buyer have the repair inspected by a professional prior to closing. An independent third-party inspection will provide the buyer with peace of mind that the repair was handled thoroughly and properly. An inspection may also provide the seller with some level of protection in the event that any future damage is blamed on an improper repair.
Side Note: Even outside of a natural disaster, we cannot stress enough the importance of a buyer walkthrough prior to closing. Damage can occur at any time, and it’s important to make sure that the home is in the condition that you expect before taking ownership.
WHAT IF THE SELLER IS UNABLE TO COMPLETE THE REPAIR PRIOR TO CLOSING?
The TREC contract states that if the seller is unable to complete the repairs prior to closing due to factors beyond the sellers control, the buyer can terminate the contract and receive a refund of the earnest money. Note that if the seller is able to make timely repairs, the contract is very much enforceable. But one day late? The buyer can choose to walk away.
If the buyer agrees, the TREC contract states that the parties may agree to extend the time for performance for up to 15 days and extend the closing date.
IN A RUSH?
If neither the buyer or seller want to delay closing to allow time for repairs, the contract includes a third option, albeit a risky one. The TREC contract states that the buyer may accept the property in its damaged condition with an assignment of insurance proceeds, if permitted by the insurance carrier, and receive credit from the seller at closing in the amount of the deductible.
This option may be a risky moves due to multiple factors. 1. The buyer’s lender may have reservations about funding the loan on a damaged property. 2. The seller’s insurance company must allow for the insurance proceeds to be assigned to the buyer. 3. The language in the contract doesn’t address issues that could arise such as: What happens if the parties agree to this option, close the sale, and the insurance claim is later denied? Who is now responsible for the cost of repairs? 4. Receiving the insurance proceeds may be a lengthy process. If the sellers financed the home, the proceeds check will be made out to both the seller and the seller’s mortgage company. Often times, the seller must endorse the check and send it to the mortgage company. The mortgage company will deposit the proceeds into an escrow account and will only release the proceeds in increments as the work is completed.
MAKE SURE YOU’RE WORKING WITH A KNOWLEDGEABLE REALTOR® WHO CAN GUIDE YOU THROUGH YOUR OPTIONS
The Casualty Loss section is unfortunately an often-overlooked section of the TREC contract. Make sure that you choose a REALTOR® who is competent on all contractual matters and who can thoroughly guide you throughout all aspects of a transaction. If you have any questions, feel free to reach out to one of our highly trained OG agents at (281)691-6177 or at email@example.com.
***Note: I am a real estate professional, not a lawyer. Nothing herein should be construed as legal advice or instructions.