Purchasers and sellers may face difficult decisions when something unexpected happens to the property between the time that the agreement of purchase and sale is signed and the transaction closes. Events such as a fire, water damage, or the discovery of environmental contamination on or under the property can have costly consequences and it is important for purchasers and sellers to understand what their rights and obligations are when there is damage to the property prior to closing.
The standard risk and insurance clause in agreements of purchase and sale says that the property remains at the risk of the seller until closing. In the event that there is “substantial” damage to the property prior to closing, the purchaser has the right to either terminate the agreement and have deposit monies returned or take the proceeds of the insurance policy and complete the purchase. Whether damage in a particular transaction is “substantial” will depend on the circumstances of the transaction.
Even if the purchasers want to continue with the purchase of the home, their lender will not close on the transaction until they are able to re-appraise the property once the repairs have been made. This was the case with so many homes that were in contract when Hurricane Sandy hit the east coast.
The bottom line here for purchasers faced with such a decision is to tread carefully and explore all options. That perfect home in the perfect location is not the same. Will it be better when repaired? Maybe.