What Happens If a House is Damaged Before Closing?

Selling a home is always a testing experience – you’ve got to endure the wait and hope that nothing occurs to derail the sale. While some sellers have a flawless experience, going from the decision to sell to closing without a hitch, most of us aren’t so lucky. Whether your buyer changes their mind before they sign the initial contract or a home inspection reveals a structural issue you didn’t know about, there’s a lot that can go wrong.

Storms, natural disasters, and freak accidents can damage a home, and there’s no way to predict or avoid them. If one occurs and the home you’re selling is damaged, you need to know what next steps to take. Read on to find out.

What happens if a house is damaged before closing?

The seller of a home remains responsible for it (and any maintenance or repairs it requires due to wear and tear or accidental damage) until the final contracts are exchanged and funds transferred.

For this reason, it’s of critical importance to maintain your homeowner’s insurance for the property until you are no longer the owner of the property.

First, let your insurance company know

If you have homeowner’s insurance (or the funds to cover the needed repairs), then you should go about repairing the property as per your insurance company’s procedure. Let your realtor know (or your buyer directly, if you are not working with a realtor) that the property has been damaged and what you are doing to correct the situation. If the repairs are scheduled or have begun, let them know when you expect the work to be completed, too.

Negotiate the repairs

Your realtor and your buyer’s realtor will then communicate and discuss possible avenues for moving forward with the sale. What happens at this point depends on the extent of the damage, what you’re doing to rectify the damage, and what’s in your contract.

In most cases, there is a clause in the contract that says if the cost of the repairs is over a certain amount of the accepted offer on the home (such as over 5%), the buyer can pull out. Less than that and the buyer will be obligated to wait for the repairs to be completed. (This varies, so check your contract.)

You have a few options for moving forward with the sale, provided the buyer wants to buy the home and the home is in a livable condition. You can either manage the repairs yourself, or you can assign the insurance payout to the buyer, so they can handle the repairs as they please. Regardless of which you do, make sure you get it down in writing, with your realtor’s guidance or (better still) a real estate lawyer’s.

The latter is beneficial for the seller because you don’t have to worry about managing the repairs, and you can move forward with the sale as close to the original closing date as possible. This can benefit the buyer for the same reasons.

Move forward

Provided your buyer is happy with what you’re doing and the level of repairs completed, your sale should move forward as planned once the damage is complete. (Or once the terms and insurance claim are ready to be settled if your buyer agrees to move forward and complete the repairs once they’ve moved into the home.) You should expect the buyer to do another walkthrough of the property (and perhaps even another inspection) to ensure the home has been repaired to a satisfactory level.

What if the damage is substantial?

If the damage is substantial, such as in the case of a house fire or a disaster that will require months of repairs, your buyer will almost certainly pull out. Even if the home will be finished to a better standard than before, most buyers will not be willing to wait.

Communicate honestly with the buyer and tell them what’s happened, what’s going to happen moving forward, and let them know about any way this damage may benefit them (such as brand new appliances, you’ll let them have some preference about the way the home is refurbished, and so on).

Do I need a real estate lawyer?

In Massachusetts, you’ll need a real estate lawyer to help you complete the sale regardless of any other circumstances, but it’s often a good idea to get a real estate lawyer involved to help both you and your buyer negotiate these new and additional terms of the sale.

It’s also a good idea to have a lawyer involved because there can be disputes during this process. For example, if your buyer wants out but your insurance company’s assessment of the damage is less than 5% of their purchase price, but their independent assessment is over 5%, you’ll want a lawyer to help you navigate this difficult situation.

My house was damaged and my buyer pulled out of the sale, what should I do next?

You’ve got a few options for what you can do next:

1. Move forward with the repairs and put your home back on the market with the renovations – this can be a good move as you may find your home is worth more after these repairs or is simply much easier to sell.
2. Delay your move – in some cases, you may find that the renovations correct some of the issues you had with the home or give you the opportunity to expand. If you were looking for more space, you may decide to stay put in the home or stay for another year until you’re ready to move again.
3. Find a buyer who is willing to buy the home in a damaged condition – This is an option for all, whether your insurance company is getting ready to pay for the repairs, there’s a problem that’s delaying your insurance payout, or if you made the mistake of forgoing homeowner’s insurance due to a restricted budget. Investors are out there who are willing to buy a home in a damaged condition, either with your policy’s insurance benefits or without one, if you did not have insurance.

We Buy Homes in Any Condition

If you’re looking to sell a home in Massachusetts that has become damaged, we may be able to help. We buy homes in any condition and can make you a cash offer on your home. You’re under no obligation to accept our offer, but if you do, you can move on with your life as planned, without having to wait for time-intensive repairs or to find a new buyer. To find out more or to get a cash offer on your home, click here.