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After months of planning, saving, and house-hunting, you have your dream home under contract. You’re busy packing your belongings and preparing for closing when you get news that turns your dream purchase into a homebuyer’s nightmare. The storm that passed through the area has caused a flood at the house you’re planning to buy. And now you have the unfortunate task of figuring out what happens to a home sale in a flood.
As a homebuyer, you’ve probably never worried about a natural disaster disrupting a deal. But if you live in a region that’s prone to floods — be it coastal states where hurricanes are a problem or a neighborhood with a river that can overflow its banks — then it’s best to be prepared for such a situation.
We’ve consulted an agent in a flood-prone region, checked contract language, and put together a list of steps you should take to decide whether to go through with the deal.
Research local flooding
Before you even start looking for a house, find out what areas near you are most prone to floods. The Federal Emergency Management Agency, or FEMA, has an online tool that lets you see where the flood zones are in any location you select.
Before making an offer on a house, it’s essential to determine the home’s flood zone. In addition to checking the FEMA map, read the seller’s disclosure. Not every state requires seller’s disclosures, and those that do don’t always ask sellers to reveal flooding status, but there may be other clues.
In Texas, for example, the seller must disclose whether they carry flood insurance. “As a buyer’s agent, that’s a red flag,” says April Mason, a real estate agent in Corpus, Christi, Texas, who sells homes 40% faster than the average agent in her market.
If the seller has flood insurance, ask if there have been previous flooding incidents, she advises, noting that it’s possible the seller is just cautious and wants the extra protection. Basic homeowners insurance usually doesn’t cover floods — and a flood is categorized as excess water spreading across two or more acres of land, or two or more properties, where the land is normally dry. If your sewer backs up because of flooding, and you don’t have flood insurance, then you could be out of luck.
For additional due diligence, contact an insurance agent, provide the address, and ask them if the home requires flood insurance. The agent can tell you what kind of flood zone the house is located in, which indicates the severity of the flooding risk. Also, ask the insurance agent for a CLUE report on the home, which will reveal any insurance claims filed on the house in the past.
“The buyer needs to have as much information about the house as possible,” Mason says.
“I try to do as much research as possible about the property on the front end.”
Still, if the house floods after you’re under contract on it, what should you do?
Secure the house
It’s not your house yet, so you can’t physically do anything about the water entering the home. That’s the seller’s responsibility. (More on that later.)
However, you can certainly encourage the seller to do everything possible to minimize the damage. Ask your agent to call the listing agent and ensure the seller is taking the necessary steps.
Water can damage many components of a home, including flooring, wallboard, wooden studs and beams, and electrical components and appliances. Floodwater can also carry contaminants, and water in the house can encourage the growth of mold. The longer any moisture stays in the home, the more extensive the damage will likely be. A powerful flood could even damage the home’s foundation.
If the flooding results from a broken pipe or damaged roof, the first step is to stop more water from coming in by shutting off the water or covering the roof. If it’s caused by an overflowing stream, you may have to wait until the water recedes.
After that, the owners need to get the moisture out of the house, pumping standing water out if necessary, and using fans or blowers to help dry surfaces. They should remove any waterlogged personal items and clean everything that remains in the house with a strong cleaner to limit mold growth.
Assess and document the damage
For a home sale in a flood, the sales contract will likely outline the buyer and seller’s obligations, and that may vary based on how much damage the flood has caused.
For example, the standard purchase agreement in Tennessee says that if the damage is more than 10% of the closing price, the buyer or seller has the right to terminate the contract. Other states may cap the maximum damage at a lower amount, or the contract might simply state that the seller bears the risk of any casualty loss until closing.
To get an unbiased evaluation of how severe the damage is, request an additional home inspection if yours has already concluded. You may have to pay another fee for the additional exam, but it could be money well spent. An inspection can help you understand:
- How significant the damage is
- How much repairs will cost
- How long repairs will take
Depending on the situation, you may even want to call in specialists to examine the foundation for possible damage. You need that information to help you decide how to move forward.
The Texas sales contract allows buyers to get an additional inspection of the house and requires the seller to cure any damages before closing, Mason notes. If the seller can’t fix the damage for some reason, the buyer can drop out of the sale and has the right to get their earnest money deposit back.
Figure out your options
Your sales contract likely specifies what happens to a home sale in a flood or other disaster. It may be under a clause labeled “Risk of Loss.” The contract may also have a “Force Majeure” clause that excuses unavoidable delays in fulfilling the contract due to events such as hurricanes and other “acts of God.”
Your agent can guide you through the options.
The contract requires that the home be in the same condition at closing that it was in when you put a contract on it, so the seller has to repair any flood damage before closing. “The contract was designed to advocate for the buyer, so that you’re not paying top dollar for a lesser-quality product than you thought,” Mason says.
However, if closing is scheduled for shortly after the flood, it’s unlikely the seller will be able to make the needed repairs in time. Your options may include:
- Backing out of the sale and asking for your earnest money to be returned.
- Seeing if you can delay closing to allow the repairs to be made.
- Closing before repairs are made, with the seller assigning the insurance proceeds over to you along with a check to cover their deductible. (The seller’s insurance company will have to agree to this arrangement.) That way, you can get the damage fixed once you take possession of the property.
- If the insurance company won’t assign the claim money to you, you can ask the sellers to pay you the amount of the claim. If they agree, they can then repay themselves when they get the money from the insurer. But be careful with this option. Your lender would have to approve this arrangement as there are often limits on how much cash you can receive from a seller as part of the transaction.
Talk to the seller
After you’ve determined what you want to do, it’s time to contact the seller. First, find out whether the seller has flood insurance.
If the seller has adequate insurance, and the damage isn’t too extensive, then you can discuss timing and whether the seller will handle the repairs or assign the money to you.
If they aren’t adequately insured, there is extensive damage, and the seller has no funds to fix the damage, then they can’t return the property to its prior condition. In that case, the buyer can opt out of the sale. When that happens, “the buyer is entitled to their earnest money back,” Mason says, noting that in some cases the seller will fight against returning the deposit.
If you do decide to go ahead with the sale, there may be additional delays, according to Prime Title. If the home was already appraised, the lender might want to reappraise the property after the flood. And getting a new appraisal may trigger the lender to issue new Loan Estimates and Closing Disclosures, which can delay the closing.
Buy flood insurance
If you buy a home knowing it has been in a flood, you absolutely must be prepared for another flood. That means taking out a flood insurance policy.
If your home is in an area with a high risk of flooding, your lender will require you to purchase a policy. Even if it’s in a place with a lower risk of flood, lenders can require flood insurance.
Unfortunately, as mentioned above, your standard homeowner’s policy doesn’t typically cover losses from floods. Instead, you need a separate flood policy. Ask the agent who handles your regular homeowner’s insurance for a quote, or find a provider through the National Flood Insurance Program.
A typical flood insurance policy will cover flood damage to your foundation, plumbing and electrical systems, appliances, furniture, and personal belongings. The average premium for flood insurance is a little over $700, but the price varies widely depending on location. Other factors that affect the cost include the amount of coverage, the age and build of the house, and what kind of flood zone your home is in.
When you’ve found your dream home, the last thing you want to deal with is the nightmare scenario of a flood before closing. Your real estate agent will be able to guide you through your options as you decide what’s best for you and your household.
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