What happens if a house sustains damage while under contract?

Most homebuyers do not want to purchase property with significant damage. Before closing on a house, the buyer generally arranges an inspection to identify damage and flaws.

Despite these efforts, events beyond the buyer’s or seller’s control, such as fire or vandalism, could occur while the property is under contract. If the damage is severe, the buyer may not want to complete the sale.

Can the buyer terminate the contract?

The law in many states protects the buyer’s right to call off the sale if damage occurs before the buyer takes possession of the property. Because these statutes are open to interpretation, many contracts include a clause addressing the matter.

Who is responsible for the damage?

A real estate contract should include a clause determining who is responsible for unexpected damage to the property.

Some contracts state that the seller will repair the house and the sale will continue if the damages fall below a specified limit, such as 5 percent of the property’s value. If the damage exceeds this amount, the buyer can terminate the contract. If the buyer is still interested, the seller may be willing to negotiate a new contract at a reduced price.

Sometimes, the seller agrees to make an insurance claim and transfer the insurance payout to the buyer. Before agreeing to this arrangement, both parties should verify that the insurance company allows it.

When buying or selling a home, it is important to expect the unexpected. A contract that covers unforeseen events, no matter how unlikely they seem, makes the process easier for both parties.