NATNews Blog > December 2017 > Five ways to help clients through a natural disaster

    Five ways to help clients through a natural disaster

    12/6/2017 1:44:19 PM
    This fall has been marked by severe weather in Texas and Florida and devastating wildfires in the West that hit residents — and the mortgage and real estate professionals who serve them — hard.
     
    When disaster strikes, there are three overall considerations that real estate agents should take into account, including the extent of the impact on the entire region in terms of recovery and real estate values, the immediate impact on pending transactions in terms of timing and delays, and finally, the five best ways to navigate affected transactions with both buyers and sellers.
     
    Long Term Recovery
     
    In Texas, more than 30,000 people were displaced in shelters, while 300,000 others were left without electricity, and nearly 50,000 homes were destroyed or sustained damage by Hurricane Harvey. By the time Harvey finally dissipated around Labor Day weekend, it had caused nearly $200 billion in damages, setting a new record as the costliest tropical cyclone on record — surpassing Hurricane Katrina’s damages by nearly double.
     
    Texas had been expected to set a sales record this year, but the downturn in the Houston market, which accounted for about 25 percent of Texas’ housing activity prior to the storm, is expected to thwart that feat, said Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University.
     
    "It could take months before the Houston area begins to enter the recovery phase and a few years before the impacted communities fully recover," he said. "For the remainder of this year, Houston is going to be depressed while it dries out."
     
    In Florida, Hurricane Irma prompted a week-long evacuation prior to the hurricane hitting South Florida that disrupted the state’s economy and housing market.
     
    According to the Florida Realtors, single-family sales statewide fell 20.4 percent in September compared to the same month last year. Looking at Florida’s townhouse and condominium market statewide, closed sales in September declined year over year.
     
    Wildfires in the West were particularly active this year, most notably destroying more than 8,400 structures in Northern California’s wine region. The value of homes nearby the devastation could be severely affected, since many of the buildings lost represent basic infrastructure to a community such as schools, churches and retail establishments. It can sometimes take five to 10 years for communities to rebuild from such widespread devastation.
     
    In support of their communities, many lenders, real estate companies and settlement service providers have made charitable contributions to organizations like the Red Cross and donated food, supplies and other much-needed goods to people affected by flooding or property damage. While their help and resources are certainly appreciated, the National Association of Realtors (NAR) notes there are several ways you can help clients, buyers and sellers caught in these challenging situations.
     
    Preparing for Contingencies
     
    Austin Perez, NAR’s senior policy representative for environmental issues, said what happens to a pending real estate transaction when a natural disaster strikes really depends on where you are in the process.
     
    “Storms the size of Harvey and Irma may cancel a transaction altogether, but it really depends on the individual contract, and it also varies from state to state,” Perez said. “At the very least, a hurricane would delay a transaction. In addition, some lenders could require an additional inspection after a storm if the appraisal has already been conducted, and depending on the findings of that inspection, that could put a halt on the transaction. If a buyer signs a contract, depending on what contingencies are included, he could decide to walk away.”
     
    One Gulf Coast-area NAR member told us that typically, when a hurricane enters the region, insurance companies will not issue any new policies, and mortgage lenders will not proceed with closings unless that insurance policy is in place.
     
    “We have certainly seen this delay closings in our area in a number of instances,” the Realtor said. “In our contract, it is stated that the seller is responsible for maintaining the property in substantially the same or better condition as it was when the agreement was fully executed. So it would be obvious that, if flooded, the property would not be in the same condition. We certainly saw many properties under contract in August 2016 not close because of the flooding. Our contract also allows the buyer to re-inspect the property within five calendar days prior to the act of sale to make sure that the condition of the property is the same or better than at initial inspection and to make sure that inspection items agreed upon for repair have been completed. We do not have any language in our state-mandated contract that refers to ‘an act of God.’”

    Navigating Affected Transactions

    Here are five tips that NAR has for helping clients navigate their way through a transaction impacted by a natural disaster.
    1. Communicate with your clients. Speak with them as soon as possible, both as to what is known, and what is not known. Don’t panic, be patient and try to encourage clients and customers to do the same. With so many people involved in this difficult situation, you will all need to work together to figure it out.
     
    1. Review contracts carefully. Review the purchase agreement, as most have provisions addressing damages that occur to the property prior to closing, and whether such damage occurs “in the ordinary course” or due to dramatic events. Contracts also ordinarily contain provisions addressing what happens when one or both parties cannot perform for reasons beyond his or her control. Typically the provision holds that such non-performance is not a default. This provision is sometimes called “force majeure” or an “acts of God” clause. The purchase agreement may also address under what circumstances a buyer or seller may change the closing date. The seller and buyer are always free to work together to amend the contract and obligations thereunder based on any new circumstances.
     
    1. Know your local laws. State laws, which are sometimes referred to as Uniform Vendors and Purchasers Risk Acts, may dictate which party, the buyer or seller, bears the risk of loss during the time a transaction is pending. Consult an attorney if there is any ambiguity as to interpretation of the purchase agreement, compliance with the purchase agreement given the change in conditions, a desire to amend the existing agreement or a question about compliance with state law.
     
    1. Advise your client to file a homeowner’s insurance claim, or at least notify the carrier of the claim, as soon as possible. Document and inventory all damages in writing, photos and video. Keep records of everything you spend on repairs and replacements.
     
    1. Keep your lender at the center of the transaction. Buyers should check with their lenders to determine how they will handle re-inspections or re-appraisals that may be required. Sellers should notify their lender and inquire about fee waivers and deferment options. Both parties should ask lenders about additional costs and or timeframes caused by the disaster, even if the property is not in a designated Federal Emergency Management Agency (FEMA) disaster area.
     
    In these challenging situations, clients look to Realtors for their guidance and expertise. This is a great opportunity for Realtors to distinguish their service offerings and build a solid foundation of trust with the client who is facing tough decisions.