While it is rare, it’s not unheard of that a home gets damaged during escrow. A home that is under contract can easily be damaged by a natural disaster, a fire, flood, or any other issue. Significant damage to the home can derail a real estate purchase and create headaches for both the buyer and seller. Although this happens rarely, both parties need to react quickly and understand how to move forward.
Review Your Contract
Most contracts will outline what to do when a home is damaged during escrow. Typically if the damage is less than five percent of the total value of the contract, both parties agree to move forward with the transaction. But the seller will need to fix the damage prior to closing.
For damage over five percent, most buyers will have the opportunity to cancel the agreement without losing any of their deposit money.
Call the Bank
If the buyer has arranged to take out a mortgage, most lenders will approve a credit up to three percent without any issues. Anything more than that, the bank will want to know about the damage, have a new appraisal, and might even cancel the loan.
More commonly, the lender will to want to re-do the loan, adjust the purchase price and put it back through underwriting. Keep in mind that this will take some time and both parties will have to extend the contract’s time frames.