Every part of the country has its own natural disasters to prepare for. In Florida, it’s hurricanes.

Florida’s hurricane season officially runs from June 1 through November 30. That doesn’t mean we have hurricanes the entire time. This simply means weather conditions during those months make tropical storms and hurricanes more likely.

Most homeowners know the importance of maintaining homeowners insurance and, in some cases, flood insurance. But what happens if you’re under contract to buy or sell a home when a storm is approaching?

What Happens if the Home is Damaged Before Closing?

If the seller already has homeowners insurance (and flood insurance, if required), their policy would typically cover storm-related damage to the property, depending on the terms of their coverage.

Unfortunately, even when insurance covers the damage, repairs can delay closing by weeks or even months.

In our market, the most commonly used contract is the FAR/BAR AS IS Contract, which contains language that addresses situations like this.

Under Section M of the contract, if the property suffers a “casualty loss” and the cost to repair the damage is 1.5% or less of the purchase price, the seller is required to make the repairs. This can also include removing or trimming damaged trees caused by a storm or fire.

If the seller cannot complete the repairs before closing, the contract allows 125% of the estimated repair cost (up to the 1.5% limit) to be escrowed at closing until the work is completed. Once repairs are finished, any unused escrow funds are returned to the seller.

However, buyers who are financing should understand that some lenders may not allow this type of escrow arrangement.

What if the Damage Exceeds 1.5%?

If the repair costs exceed 1.5% of the purchase price, the buyer has two options:

1. Accept the property in its current condition and receive a credit equal to 1.5% of the purchase price from the seller, or

2. Cancel the contract and receive a refund of their deposit.

What if the Storm Doesn’t Cause Damage?

Sometimes storms approach our area but ultimately cause little or no damage. Even then, they can still impact a real estate transaction.

When a named storm enters the region, many insurance companies temporarily stop binding new insurance policies. This is known as an “insurance binding moratorium.”

If a buyer has not already bound their insurance policy before the storm approaches, they may not be able to close, especially if their lender requires proof of insurance before funding the loan.

This is why binding insurance early is so important.

How Does the Contract Protect Buyers and Sellers?

The FAR/BAR contract includes a “Force Majeure” clause to address situations beyond either party’s control.

This clause covers events such as hurricanes, floods, extreme weather, fires, government shutdowns, pandemics, transportation delays, and other major disruptions that prevent someone from performing under the contract despite reasonable efforts.

If a hurricane or other covered event delays closing, the contract automatically extends affected deadlines for up to 7 days after the event no longer prevents performance. However, the extension cannot exceed 30 days beyond the original closing date.

If the delay extends beyond 30 days, either party may cancel the contract, and the buyer is entitled to a refund of their deposit.

Other Delays Buyers Should Expect After a Storm

Even if a property is not damaged, lenders often become more cautious after major storms.

A lender may require:

* A re-inspection or new appraisal to verify the home’s condition

* Additional underwriting review

* Updated insurance documentation

These requirements can create additional costs, especially to buyers, and further delay closing.

This becomes even more stressful when buyers or sellers are coordinating another home sale or purchase at the same time. Delays in one transaction can create a domino effect that impacts multiple closings.

The Best Advice? Bind Your Insurance Early

The easiest way to avoid major hurricane-related closing delays is simple:

Bind your insurance policy as early as possible.  If you’re a seller, make sure your real estate agent is on top of this and checking routinely with the buyer’s agent regarding this. 

If the buyer’s insurance is already bound and the loan has been cleared to close before a storm approaches, you are much less likely to experience significant delays during hurricane season.

It is always important to work with a qualified Realtor who understands the complexities of the real estate sales contract and how to navigate any event that might come up.