After months of house hunting, you finally found your dream home. Your offer was accepted and you’ve signed the piles of paperwork. Now you’ve entered a period known as ‘escrow,’ which means the end of the road is still a little ways away.
When a home is said to be “in escrow,” it means that the home is under contract to be sold but has not yet gone to closing. A home in escrow is sort of in an “in-between” stage, which means that anything that happens during this time could still potentially affect the outcome of the sale. So what happens if a home is damaged during escrow?
While it doesn’t happen too often, homes can definitely be damaged during escrow. Natural disasters, fires, floods, vandalism and many other issues can come about unexpectedly, which is why it’s important for all parties to know what to do if a home is damaged during escrow.
Check the Contract
The first thing you should do if your 
home is damaged during escrow is check the contract. The majority of purchase agreements drafted up will include information about how these situations should be handled. Typically if there is damage, and it is less than 5% of the total value of the home, both parties agree to move forward with the transaction. But the seller will need to fix the damage prior to closing. Any damage worth more than 5% of the home purchase value will give the buyers an opportunity to cancel the agreement and get their deposit money back.
If the contract doesn’t include a provision for damage during escrow, buyers should seriously consider adding one before signing. This type of clause doesn’t just cover damage to the home itself, but can also cover the home’s appliances and systems such as the hot water heater or HVAC unit.
Call your Lender 
If the buyer has arranged to take out a mortgage, most lenders will approve a credit up to 3 % without incident. Anything over that, the bank will want to know about the damage. A new appraisal will need to take place as well. In the worst case scenario, the loan will be canceled.
More commonly the lender is to want to redo the loan, adjust the purchase price, and put it back through underwriting. You’re basically starting back at square one, so be prepared to extend the contract’s time frame since the bank may require another appraisal.
Do a Walk-Through Before Closing
Make sure you do a walk-throught the day before or the day of closing. Walk-throughs can prove invaluable when it comes to determining any pre-existing damage or serious problems with the home’s structure/systems. If you notice something wrong during this walk-through, stop the closing until the issue has been resolved by the seller.
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