George McCaw of S.E. Buildcorp LLC and Escambia County, Florida designs, drafts, and renovates properties in South Florida. With prior real estate experience, George McCaw explains the real estate process of buying, selling, and renovating in disaster prone areas like Florida.
Hurricanes, floods, bushfires, and other natural disasters cause seemingly endless devastation. Homebuyers, sellers and contractors alike must know how disasters can affect the real estate market. Staying in the know about the weather is paramount to ensuring the best-laid investment plans aren't thwarted.
George McCaw of S.E. Buildcorp LLC and Escambia County, Florida says that whether individuals are looking to buy in areas prone to hurricanes, like Florida or attempting to sell in potentially wildfire-inducing climates in California, there are a few things to keep in mind.
Damage Mitigation: Before and During
It's the seller's responsibility to mitigate any damage that could occur when a natural disaster is threatening to arrive.
George McCaw explains that experts encourage those looking to sell their homes or investment properties in hurricane-threatened areas to board up windows and shut off the electricity to minimize disastrous impacts.
As the storm takes hold, all must be mindful of documenting and reporting any damage they couldn't mitigate.
Responsibilities: After the Natural Disaster
Following the disaster, the sellers, investors, and developers should survey the damage done to the property.
Typically, the Federal Emergency Management Agency (FEMA) will announce the natural disaster. And if so, all sellers who had their homes appraised or inspected prior to the storm or fire must schedule a re-inspection.
Afterward, the seller's real estate agent must report any damage or structural changes to the buyer's agent. The same goes for construction projects that were already underway prior to the weather event.
George McCaw of S.E. Buildcorp LLC and Escambia County, Florida says that mortgage lenders mandate that properties backed by a loan must be inspected to confirm no major damage was experienced. If significant damage is present, adequate repairs must be made to return the property to its original state before real estate agents list it.
Florida's FAR/BAR As-Is Residential Contract for Sale and Purchase
Most real estate agents in Florida use a standard contract which covers potential closing delays.
Generally speaking, unforeseeable circumstances (such as natural disasters) are viable reasons that would prevent sellers from fulfilling their side of the contract.
When considerable damage due to a hurricane or other disaster is experienced, there's a timeframe of seven days in which to ensure the essential closing services are unavailable.
George McCaw says that should these circumstances prevent contractual obligations after 30 days, the seller or the buyer is allowed to null the contract and, in the case of the buyer, receive their deposit as a refund.
Homeowner's Insurance and Natural Disaster Clauses
The seller must familiarize themself with their homeowner's insurance deductible, hurricane coverage, and replacement cost coverage. But it's also important for the buyer to be aware of their insurance company's restrictions regarding the fulfillment of their property purchase.
The majority of home insurance policies come with a "cone of uncertainty" clause. In other words, if a named storm developed within the cone of uncertainty (i.e., the region threatened by the incoming natural disaster), the insurer won't write the policy while the threat is ongoing.
Cases like these are known as "being in the box." And the buyer won't be allowed to acquire title or hazard insurance during the same period.
George McCaw of S.E. Buildcorp LLC and Escambia County, Florida explains that when buying a home, mortgage lenders won't usually grant the commitment without homeowner's insurance. Therefore, purchasers must wait until the natural disaster passes before acquiring insurance. Then, they can secure their mortgage and finalize the home purchase.
Industry professionals encourage buyers to keep the seller updated throughout these times. Following a storm or wildfire, providers might take longer to sign off mortgage applications.
Natural Disasters and How They Affect Title Insurance
It's up to real estate agents to keep the title insurance company updated about agreed contract changes. However, both the buyer and seller themselves should be upfront with questions if something is unclear.
Contract changes must be made available to the title insurance company through signed documents, especially if the alterations impact the closing date explains George McCaw. It's essential to ensure the prepaid closing costs are handled correctly on the settlement statement, as these fees change when the closing date moves.
Interestingly, there isn't a direct impact on the title if the seller's property experiences natural disaster damage. Title insurance policies simply legitimize the home's rightful owner. It doesn't guarantee the worth of the abode like homeowner's insurance.
Lastly, all deeds and title policy documents are kept in a secure environment, like a safe deposit box or a portable, lockable container. Although most title companies use digital records these days, guaranteeing access at any time.
Natural disasters are difficult times for everyone. But these considerations ensure smooth processes for those looking to buy, sell or develop in these disaster-prone areas.
