Real Estate

How does hurricane damage affect residential closings for home buyers and sellers?

Bradley L. Barreto is chief financial officer at Coral Gables Title + Escrow, LLC in Coral Gables.
Bradley L. Barreto is chief financial officer at Coral Gables Title + Escrow, LLC in Coral Gables.

Since Hurricane Irma swept through Florida in early September, many home buyers and sellers have wondered how damage to a property will affect their transactions. The answer, as in many things in life, depends on the circumstances.

Let’s start with the issue of landscaping. The hurricane toppled trees, uprooted shrubbery and caused other outdoor damage throughout the region. However, the loss of a beautiful oak, banyan or ficus tree is typically not enough in itself to allow a buyer to walk away from the transaction without losing the deposit.

A standard Florida sales contract is very clear about who is responsible for landscaping damaged by a hurricane, flood or fire. In these cases, the seller will need to pay for pruning or removal, and nothing more.

While the sales contract sets limits on the seller’s obligations, there are creative ways to resolve landscape damage issues in a way that satisfies both buyer and seller. In one recent matter, the seller had her gardener remove the damaged landscaping along the back fence of her property. But when the buyer came to reinspect the home, he wasn’t satisfied and asked the seller to finish removing the shrubbery and plant sod in its place — an issue not covered in the sales contract.

Rather than get into an argument that would have delayed the closing, we suggested that the buyer hire a landscaper and get an estimate for finishing the removal and planting the sod. The seller then gave the buyer a credit for that amount, and the sale was completed without further issues.

The standard Florida sales contract is also very clear about what happens if a property is damaged in an event like a hurricane. If the property is damaged in a storm, the cost of restoration needs to be determined. If the cost of restoration exceeds 1.5 percent of the purchase price, the seller can refuse to make the repairs, leaving the buyer with the option to either accept the property “as-is” and proceed to closing, or cancel the contract and receive a full refund of any deposits paid.

If the costs of restoration are 1.5 percent of the purchase price or less, then the seller must make the repairs. If the work can’t be completed by the closing date, the seller must leave 125 percent of the estimated restoration costs in escrow to cover the work. Any excess funds left upon completion of the restoration would be returned to the seller.

But after Irma, there were situations that required a careful reading of the contract. For instance, one buyer was scheduled to close on a residence on the 38th floor of a condominium tower on Brickell Avenue. After seeing the hurricane-related flooding on Brickell, he wanted to cancel the sale and get back his $50,000 deposit.

Because the possibility of ground-level flooding does not entitle the buyer to cancel “without penalty,” he could either cancel the contract and lose his deposit, or go ahead with the purchase. He chose to buy the residence after all.

Fortunately, Irma caused relatively little structural damage to homes in Miami-Dade and Broward Counties. However, many South Florida sellers were left without power for a week or longer. That outage delayed some closings, but didn’t otherwise affect the terms of the sales. In a standard contract, a temporary lack of power does not give a party the right to pull out of the transaction.

While Hurricane Irma is now behind us, it’s important to remember that the 2017 hurricane season is not yet over, and 2018 may bring further storms. Therefore, buyers and sellers should understand their responsibilities in a typical sales contract and be prepared to find a solution in the event of damage to the property.

Richard L. Barbara is chief operating officer and Bradley L. Barreto is chief financial officer at Coral Gables Title + Escrow, LLC in Coral Gables, Florida. Visit www.cgtitle.com.

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