When it rains like it has, I will usually get questions from agents about storm-related damage during escrow. So here are some general guideposts if you encounter any storm-related damage during a pending sales transaction: 

1. There’s No “One-Answer-Fits-All:” Every sales transaction is unique. When there’s storm-related damage during escrow, what you and your client should do depends on a host of factors, including what happened; what is the extent of damage and repairs; whether we’re on the seller’s side or buyer’s side; what stage of the transaction are we in; and what the parties want to do, among many other considerations.

2. Property Condition at Acceptance: In many circumstances, it is very helpful to know that C.A.R.’s Residential Purchase Agreement (RPA) requires the seller to deliver the property to the buyer at closing in substantially the same condition as on the date the parties entered into their agreement (see RPA paragraph 7B(1)). So absent anything else, if a storm causes damage to the extent that the property’s condition is not substantially the same as on the date of acceptance, the seller must generally repair the damage before close of escrow.

3. Seller May Have to Disclose: If a storm-related issue adversely affects the property, the seller must generally disclose that as a material fact to the buyer (see RPA paragraph 11A(4)). Upon such disclosure, the buyer may have a 5-day right to cancel, even if the buyer had previously removed all contingencies (see RPA paragraph 11G(1)).

4. Might Not Be Difficult to Negotiate a Resolution: Storm-related damage is a Mother Nature type of thing. Even serious damage is usually handled as a “no-fault” disruption that both parties know they may have to just work out with each other. As the agent involved, do your best to help your clients navigate their way through the transaction. The seller’s side should, as a general matter, get cost estimates for the repairs (including any mold remediation). They generally should also inform the buyer, and allow the buyer and buyer’s inspectors an opportunity to inspect the damage. The parties can then make an informed decision when negotiating an amicable resolution with each other if needed.

5. Relatively Safe Solutions: A relatively safe and straight-forward solution to storm-related damage during escrow is for the seller to conduct repairs before close, with perhaps an extension of time to close if needed. Any seller repairs must be performed in a good, skillful manner, and comply with other requirements in paragraph 15 of the RPA. Alternatively, an even cleaner and better approach might be for the seller to give the buyer a credit or other concession in lieu of doing repairs. You can use a Request for Repair (RR) form for that. Opting for a seller credit means we will sidestep any disagreements or delays that may arise when a seller undertakes to do repairs before close of escrow.

6. Risky Approaches to Avoid: Two riskier approaches to storm-related damage that the parties should generally avoid are: (1) Holding back the seller’s funds in escrow after close; or (2) Requiring the seller to do repairs after close. Time and time again, things will go awry, and the contractual language that the parties used will fail to adequately address the parties’ respective rights and obligations concerning the issues that arise. Other concerns for seller repairs after close include, without limitation, nonperformance, unsatisfactory work, injury or damage, contractor licensing issues, mechanics liens, permits, insurance and bonding issues, and unanticipated costs and delays. If your clients nevertheless want to move forward with a riskier approach, that’s up to them. Do not draft or furnish your clients with the contractual language for their holdback or seller-repair-after-close situation. You do not want the potential liability that comes with that. Instead, advise your clients in writing (and get a written acknowledgement of receipt) that they should ask their own attorney to draft or review a contractual amendment for their specific situation.

Copyright© 2024 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of February 5, 2024. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.