What Happens if Your Home Is Damaged While Under Contract?

By Linda Welsh

Specialize in representing savvy Buyers and Sellers for residential, second home, vacation properties, lake and hill country properties, new and existing homes, land and lots. Relocation services include area, community and neighborhood expertise and helping the entire family to find the perfect home to meet their needs and wish list.

When unexpected damage occurs to a home under contract, knowing the next steps is essential. Whether caused by a storm, accident, or other unforeseen event, property damage can create stress and uncertainty for both buyers and sellers. However, understanding what the contract covers, exploring available options, and knowing how insurance plays a role can make the process smoother. Here’s what you need to know:

1. Review the contract. Real estate contracts vary by state, but most include clauses addressing property damage during escrow. If significant damage occurs and cannot be repaired, the contract is usually canceled, and the buyer’s earnest money is refunded. If the damage is repairable, the seller should contact their insurance company to determine the cost and scope of repairs. The goal is to restore the home to its original condition before closing.

2. Assess the damage. It’s important to evaluate the extent of the damage. The seller should work with their insurance provider to determine what is covered and what repairs are necessary. Buyers have several options: they can move forward with the purchase as planned, negotiate an extension to allow time for repairs or withdraw from the contract.

In some cases, the seller’s insurance proceeds can be transferred to the buyer, allowing them to handle the repairs after closing. If major repairs are needed, setting aside additional funds in escrow can help cover unexpected costs.

3. Check the CLUE report. A home’s insurance history can affect its insurability and future claims. The Comprehensive Loss Underwriting Exchange (CLUE) report provides a record of past insurance claims filed on a property. Multiple claims—especially for water damage—can raise concerns for buyers and make obtaining insurance more difficult.

If a property has had two or more water-related claims within a short period, insurance providers may flag it as high risk. Reviewing the CLUE report helps buyers make informed decisions about whether to proceed with the purchase.

You also need to consider insurance availability. Securing insurance has become a growing challenge in many areas, especially in regions prone to natural disasters like wildfires, floods, or hurricanes. Some insurance providers are withdrawing from high-risk markets, making coverage harder to obtain. Buyers should confirm they can secure adequate insurance before finalizing their purchase. If the current provider is willing to transfer the policy, it can help ensure a smoother transition.

By reviewing the contract, assessing the damage properly, and checking the CLUE report, buyers and sellers can navigate unexpected property damage with confidence. If you have any questions or need guidance, feel free to call me at 512-657-4033 or email me at linda@lindawelshrealty.com. I’m here to help every step of the way.