Imagine the following scenario for a moment: After months of searching for the perfect place to call home, you write an offer on the perfect lakeside property in Minnesota. After a little negotiation, the offer has been accepted and after the inspection is complete, you are scheduled to close your dream home in 60 days. But then Mother Nature attacks! Three weeks before closing, straight-line winds blow across the county where the lake home of your dreams is located. Two picturesque oak trees were uprooted that were the focal point of the landscaping in the front yard. One landed on top of your dream house and the roof is severely damaged. What happens now?
This is where the “Risk of loss” clause comes into play. Risk of loss is one of those “boiler plate” clauses of the purchase contract that is used most often in Minnesota. As it is pre-printed, some real estate agents will overlook this clause when reviewing paperwork with their clients, but just like any other line in any contract, it is very important to understand it.
The section of the contract that describes the risk of loss states that the risk of loss due to any reason, be it an act of God or acts of vandal, will be the responsibility of the seller from the moment the purchase contract is signed until the date closing.
This means that if there is a fire or an accident, the seller must put the house in the condition it was in at the time the contract was written and signed. So if the ten-year-old dishwasher is turned off a few days before closing, the seller will replace it. If a neighbor backs up on the mailbox at the end of the driveway, it is the seller who must repair the post and replace it with a new one. Final walkthroughs are essential in determining the condition of the home before signing closing documents.
So what about those picturesque irreplaceable oaks on the stage above where the roof was damaged? Three weeks before closing, there may be plenty of time for the seller to call their insurance company and repair the home. But is it the same house? Most importantly, does the buyer still have to buy the house? Not.
The clause goes on to say that in the event of substantial damage to the home or property, it is the buyer’s option to cancel or continue the purchase agreement. In the situation described above, the landscape was changed and could not be replaced. The damage to the home triggered an insurance claim that would now be reflected in a CLUE insurance report that could affect the ability to insure the home. Buyers now have the right to cancel the contract and will be refunded all the money from the earnest money.
The risk of loss can come into play when buying or selling a home during the severe weather season. Most of the time, if repairs can be made quickly to the satisfaction of both buyer and seller, the contract will be closed on time. But when a property suffers major damage, it is important that buyers understand what the options are when buying a home. Note: The situation described here refers to Minnesota real estate purchase agreements. Real estate is LOCAL, so it is imperative that buyers and sellers contact local experts (real estate agents, brokers, or attorneys (licensed in the state where the home is located) to understand the options when a situation occurs. loss.