Home Damaged During Escrow? Here’s What to Do
Home damaged during escrow due to fire, flood or other event? Here’s what you need to do.
1. Review the contract
Most contracts include a process for dealing with damage if it happens. Typically, if the damage is less than 5 percent of the contract’s total value, both parties agree to move forward with the transaction. But the seller will need to remedy the damage prior to closing. For damage over 5 percent, most buyers will have the opportunity to cancel the agreement without losing any deposit money.
If your contract doesn’t include such a provision, consider adding one before you sign. Such a clause typically provides coverage for things like appliances, boilers or central air conditioning systems that might break.
2. Get your bank involved
If the buyer has arranged to take out a mortgage, most lenders will approve a credit up to three percent without incident. Anything more than that and the bank will want to know about the damage, have a new appraisal, and may even cancel the loan.
Typically, the lender will want to re-do the loan, adjust the purchase price, and put it back through underwriting. Going back to the beginning takes time and may require another appraisal. Both parties will have to extend the contract’s time frames.
3. Get an inspection
It’s so important to have a property inspection before closing. It would be easy for a seller to argue that the damage was pre-existing. And if the buyer didn’t inspect, there’s no way to prove it otherwise. If there are problems after the inspection, negotiate a credit or require the seller to make repairs prior to closing. Bottom line: Waiving a property inspection to be more competitive as a buyer can get you into deep trouble.
4. Take advantage of the walk-through
Walk through the home prior to closing. If something isn’t working or there is damage, delay the closing. A buyer has leverage because the seller wants to close, get their money and move on. It’s in the seller’s best interest to cooperate and remedy any issues. Be sure to schedule the walk-through the day before or the day of the closing. A lot can happen, even in just a few hours.