Uh-Oh! What Happens When a Tornado (or Earthquake, or Flood) Damages a “For Sale” Home Before Closing??

Short Answer: Buyer’s Call

[Note to Readers:  The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced.  If you need legal advice, please consult an attorney.]

RISK OF LOSS: If there is any loss or damage to the Property between the Date of this Purchase Agreement and the date of closing for any reason, including fire, vandalism, flood, earthquake or act of God, the risk of loss shall be on Seller.  If the property is destroyed or substantially damaged before the closing date, this Purchase Agreement is canceled, at Buyer’s option, by written notice to Seller or licensee representing or assisting Seller. If Buyer cancels this Purchase Agreement, Buyer and Seller shall immediately sign a Cancellation of Purchase Agreement confirming said cancellation and directing all earnest money paid here to be refunded to Buyer.

–Minnesota Purchase Agreement, lines 321. – 326.

While the Twin Cities has been blissfully spared (so far) severe weather this Spring, outlying areas haven’t been so lucky.

What happens if, after the Buyer and Seller come to terms, a tornado or other storm significantly damages the home?

“Force Majeure” Clause (aka, “Risk of Loss”)

As with most residential real estate matters . . . step #1 is to consult the contract. 

For those allergic to legalese, let me translate the “Risk of Loss” clause (above) that governs such situations for Minnesota home buyers and sellers: “It’s up to the Buyer.”

Just one word of advice to emotional Buyers, however, before they (too) hastily pull the plug on their now-sullied dream home:

Look past the temporary damage, and consider this: once insurance has replaced the roof, windows, and any other storm-related damage, the home you’re taking title to may actually be in better condition than the one you originally contracted to buy.

Perhaps that’s why severe weather derails fewer home deals than one might expect . . .

P.S.: Once upon a time, the term “Final Acceptance Date” was used instead of “Date of this Purchase Agreement.”

I’m guessing the change was prompted by one or both of these reasons: 1) “Final Acceptance Date” — when all parties have signed all the contract’s terms, making it officially “executed” — was too technical for consumers; and 2) if the tornado damaged the home after the date on page 1 of the Purchase Agreement, but before the date of “Final Acceptance” . . . the parties wouldn’t have consummated the contract (at least, not without first explicitly addressing the storm damage).

See also, “Accepted Offer” vs. “Fully Executed Purchase Agreement”.”

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