Purchase Agreement Cancelled—Understanding Risk of Loss during Minnesota’s Tornado Season

Minnesota’s summer storm season has started. The first big severe weather outbreak of the season walloped Minnesota yesterday. Hail pummeled roofs. Wind tore off siding and snapped trees like toothpicks. Lighting zapped houses causing a variety of damage. And tornados literally moved homes off foundations. From the time we are very young, Minnesotans are taught how extremely important it is to be weather alert during the summer.

Unfortunately, Mother Nature doesn’t care if a homeowner just accepted an offer from a buyer after having their home on the market for weeks on end. No doubt some of the homes damaged in yesterday’s storms will affect homebuyers and sellers with a contract in place.

Picture the following scenario: After months of scouring Anoka County for the perfect place to call home, you wrote an offer on a home in Lino Lakes that was accepted and is scheduled to close in 45 days.

A few weeks prior to the closing, severe storms with straight-line winds blow through Lino Lakes, Centerville and Hugo. Concerned, you drive up to your dream home and see that the picturesque oak trees that gave the home character have been uprooted. Worse yet, one of the huge trees crashed onto the house severely damaging the roof and eaves. You are devastated as this was no longer the home you pictured in your dreams. What happens now?

Risk of Loss is one of those “boiler plate” clauses on page four of the purchase agreement used most often in the State of Minnesota. Being preprinted, some agents and/or their clients will gloss over this clause but it is very important to understand, as is every other line in the document you sign to buy a home.
The highlighted section starting at line 150, clearly states that the risk of loss due to any reason whether an act of God or the acts of vandals will be the responsibility of the seller from the time the purchase agreement is signed until the date of closing. That means if there is a fire or accident the seller is required to bring the home into the condition that it was in at the time the contract was written and signed.

So if that temperamental decade-old dishwasher goes out, the seller is required to repair or replace it. If a deliveryman backs over the mailbox at the end of the driveway, it is the seller who must repair the post and replace with a new box. And if hail leaves dents in the aluminum siding, the seller must make the repair.

Final walkthroughs are essential to ascertain the condition of the home prior to signing the closing documents. But what happens to those irreplaceable picturesque trees that have fallen on the roof? Three weeks prior to a closing, there could be plenty of time for the seller to call their insurance company and have the home repaired. But is it the same house? And more importantly does the buyer still have to buy the home? In a word, no.

The clause goes on to say that in the case where there is substantial damage to the home or property, it is the buyer’s option to cancel or continue with the purchase agreement. In the fallen tree scenario outlined above, which was a real situation that occurred a few summers ago, the landscaping was significantly changed in the eyes of the buyers as the trees could not be replaced. The damage to the home caused an insurance claim that would now be reflected in a CLUE insurance report that could affect the ability to insure the home. The buyers opted to cancel the contract as was their option in the clause with all earnest money refunded.

Risk of loss comes into play quite often when buying and selling a home. In most cases the repairs are made quickly to both the buyer’s and seller’s satisfaction and the contract will close on time. But when the property sustains significant damage, the buyer has the option of continuing to closing or walking away from the deal. Boilerplate or not, Risk of Loss is an important clause to understand when buying or selling a home.


 Copyright 2010 Teri Eckholm  

Home Buyers Guide: Important Checklist for a Final Walk-Through

What an exciting day; the day you close on your new home! A few days before, your Realtor had called to schedule the date and time of the final walk-through. You thought, “This is great! I needed to check the paint color in the bedroom and measure the windows for blinds.” But that is not what the final walk-through is for. This is the last opportunity for you to see the home prior to closing. It is an appointment not to be missed or glossed over. It is a time to stay focused on your investment and examine the condition of the property one last time.

The purchase agreement that you sign in the state of Minnesota requires the seller to warrant that the central air conditioning, heating, plumbing and wiring systems on the property are in working order on the date of closing. It also insures you the rights to a “walk-through” review of the property prior to closing. This is not something to forego.

Last year there was a news report of first-time buyers who headed with all of their belongings directly to their new home after closing. They intended to move right in and enjoy their dream home, but arrived to find a nightmare. Sometime since seeing the home and writing a purchase agreement, a pipe had burst and flooded the entire home. These buyers had considered the final walk-through unnecessary since they had just seen the home a couple of weeks ago. Now they were the proud but frustrated owners of a huge mess. Although they do have legal remedies for having the home repaired, these buyers would have been in a much better position if they negotiated with the seller prior to closing. Or in the case of this extreme damage, the buyers could have not signed the final documents to purchase the home.

Every buyer should do a final walk-through on the home as close to the closing as possible. I suggest to my clients that we schedule the walk-through immediately prior to the closing. We meet one hour before at the home to review the condition of the property and then go directly to the closing. Any problems are noted and I immediately contact the seller’s agent so they have time to discuss the situation with their seller before our arrival.

The walk-through just prior to closing doesn’t eliminate every surprise that a new buyer might face. But it significantly reduces the chance of closing on an unknown disaster. Here is a checklist you can use as a guide to remind you of the things to check during your final inspection of the home.



Final Walk-Through Checklist
Double Check the Paperwork**Do you have a copy of the sellers’ disclosure?
**Do you have all required/requested inspection reports?
**Have you checked with the city to verify that all permits were issued for repairs and other information on the home’s history?
**Are all work orders complete? Are you satisfied with the results?

Exterior Review
**Check steps, sidewalks, driveways and patios for any noticeable change.
**Review drains, downspouts and gutters for change.
**Look at all doors and windows to verify they are in the same condition.
**Check the roof for changes…do any shingles appear loose or missing?
**Check the garage door? Do the openers work? Is the auto-reverse functional?
**Check for any noticeable leaking in garage.
**Double check garage and exterior lights.
Plumbing Review**Flush all toilets.
**Check all faucets both hot and cold for water pressure and temperature.
**Watch all traps and drains for proper drainage.
**Check operation of all appliances:

• Washer/Dryer
• Stove
• Dishwasher
• Water Heater
• Water Softener
• Refrigerator
• Garbage Disposal
• Trash Compactor

**If there is a in-ground sprinkling system or swimming pool, verify that it is in proper working order.
Interior Rooms Review
**Check that all doors, windows and screens are operational.
**Check ceilings, walls and floors for stains or other signs of damage.
**Check all handrails.

Electrical Review
**Check all lights, outlets, bathroom fans and kitchen fans.
**Verify that all smoke detectors, carbon monoxide detectors, security systems and door bells are functioning.
Furnace and Air Conditioning Review**Increase home thermostat on furnace to verify proper operation.
**Test air conditioning by lowering thermostat if outdoor temperature is above 65 degrees to verify air conditioning is operating.
**Check that gas fireplaces are operating properly.
Attic and Basement Review**Check for changes in any stained, damp or wet areas.
**Verify that there are no new wall or floor cracks.
**Is the sump pump operational?

A quick review of the home inside and out with a checklist will get you back to exciting part of that final walk-through…Will the couch look better here or there?


If you are relocating to Minnesota, are looking for Homes for Sale in the north and east Twin Cities metro area and need help from a professional Realtor, give me a call. Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Copyright 2007 terieckholm.com