With the recent fires and floods in Colorado Springs, buyers may wonder what happens in the situation a home they are under contract for purchasing becomes damaged prior to closing.
Per the Contract to Buy and Sell Real Estate:
19.2. Damage, Inclusions and Services. Should any Inclusion or service (including utilities and communication services), system, component or fixture of the Property (collectively Service), e.g., heating or plumbing, fail or be damaged between the date of this Contract and Closing or possession, whichever shall be earlier, then Seller shall be liable for the repair or replacement of such Inclusion or Service with a unit of similar size, age and quality, or an equivalent credit, but only to the extent that the maintenance or replacement of such Inclusion or Service is not the responsibility of the Association, if any, less any insurance proceeds received by Buyer covering such repair or replacement. If the failed or damaged Inclusion or Service is not repaired or replaced on or before Closing or possession, whichever shall be earlier, Buyer has the Right to Terminate under § 25.1, on or before Closing Date (§ 3), or, at the option of Buyer, Buyer will be entitled to a credit at Closing for the repair or replacement of such Inclusion or Service. Such credit shall not exceed the Purchase Price. If Buyer receives such a credit, Seller’s right for any claim against the Association, if any, shall survive Closing. Seller and Buyer are aware of the existence of pre—owned home warranty programs that may be purchased and may cover the repair or replacement of such Inclusions.
If the water heater or the furnace goes out prior to closing, the seller is responsible for resolving the issue since the seller is still the owner of the property. But what happens when the damage to the home is far greater than an appliance going bad?
If a home is damaged by flooding or a fire, the home buyer is obligated to purchase the property if the damage is 10% or less of the purchase price. If the damage exceeds 10% of the purchase price, the buyer can terminate the contract.
Although the buyer is obligated to proceed with the purchase of the property, the seller is required to perform the necessary repairs to the home prior to closing. If repairs cannot be made prior to closing, buyer can terminate the contract or move forward. If the buyer proceeds, the seller would transfer any insurance proceeds at closing to the buyer for the repairs.
If a buyer does decide to terminate the contract after a home has been damaged and it is less than 10% of the purchase price, the buyer’s earnest money would be at risk.
Of course, consult with an attorney if you have questions regarding your situation as this post is for informational purposes only and shall not be deemed as legal advice.
If you need assistance in purchasing a home in Colorado Springs, contact Patricia Beck at 719-660-9058.