I was writing an offer with a client yesterday and for once, this buyer was pleasantly surprised by a provision of the California Real Estate Purchase contract. We were discussing contingencies and deposits and what happens if.....
I explained that she would put a deposit in escrow and then start her inspection process. If something came up during the 10 day contingency period that she was not comfortable with, or that the seller refused to fix or give her a credit for, then she could drop out and get her deposit back. However, if she removed her contingency and then did not go through with the sale her deposit would be at risk.
My client's daughter then said, " So if the house is destroyed by an earthquake, and you do not want to by it you could lose your deposit." They were so happy to hear that no, that was not the case. There is another provision in the contract which says if the house is substantially damaged then the buyer can elect to cancel the contract or take the insurance proceeds and rebuild themselves.
This fact made my buyers happy as it really eliminated a big risk for them. Basically even after the contingencies are removed, if the house is substantially damaged by an earthquake, fire, flood, etc., the buyer can cancel and not loose their deposit.
Unfortunately when you buy or sell a home in Palo Alto things can happen that are out of everyone control. Homes burn down, get flooded, and even occasionally get damaged by earthquakes. If this happens during that short period of an escrow, especially the part of the escrow when the contingencies have been removed, there is a remedy that relieves the buyer of the responsibility of purchasing that home.
I wonder if any homes on the east coast were in escrow and damaged by the quake last summer?
If you have any questions about buying or selling a home in Santa clara or San Mateo county please feel free to contact me.