Florida property insurance biggest unknown for real estate after Ian

Just over two weeks ago, Hurricane Ian devastated many areas of Southwest Florida with devastating winds and historic flooding. As impacted communities struggle to regain some sense of normalcy through the restoration of power, water and communications, we are beginning to ask questions about how this storm will impact the local real estate market. I will address some of the immediate implications that our real estate agents deal with on pending sales contracts and the aftermath of a hurricane event during the term of the contract. Additionally, I will address the forward-looking aspect of the housing market and what the impact on home prices might be as we repair and rebuild the destructive forces of the hurricane.

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Days before Ian’s landing and to this day, several questions and concerns have surfaced about the rights and obligations of buyers and sellers under their pending sales contract. For the sake of simplicity, I will only refer to the FR/BAR residential property sale and purchase agreement “as is” (the “Sales Agreement”) as this is the predominant agreement used in our residential real estate market, but is by no means the only agreement, used in our market. As the management team, our lead brokers and in-house counsel found themselves dusting off contract terms that are almost never, if ever, used in the normal course of business. Contract clauses on issues such as force majeure, risk of loss and inspection rights came to the fore when it came to decoding the rights and obligations of the contracting parties after the hurricane.

When a natural disaster hits like a hurricane, the legal term “force majeure” is sometimes hastily thrown around. The term “force majeure” is a French term meaning “force majeure”. In the contractual context, it refers to an act of God (e.g. a hurricane) or other disaster (e.g. a war) that prevents the contracting parties from either performing the contract at all, or at least being unable to be to comply with the timeframe originally set out in the contract.

In the case of the Purchase Agreement, deadlines for inspections may not be met due to hurricane restrictions (e.g. no trespassing on the property). In addition, certain terms of a loan approval may not be possible due to the damaged condition of the property as a result of the hurricane. The force majeure provision of the sales contract provides for an extension of these periods in some cases and the right to terminate the contract in other circumstances.

Some buyers have been eager to cancel outstanding purchase contracts immediately before and after the hurricane, due to nothing more than the discomfort and uncertainty the storm causes before and after landfall. It’s often not that easy. The contractual risk provision obliges the seller to repair property damage up to 1.5% of the purchase price. This provision of the purchase contract is rarely referred to and will require revision after the last few weeks of actual implementation. For example, who determines the value of the necessary repairs – the buyer or the seller? What if there is disagreement about the amount of repairs needed? These are the gray areas that keep real estate attorneys busy and need further clarification in future revisions of the sales contract.

Another provision in the contract of sale is the right of inspection, which generally states that a seller will, after reasonable notice, allow prospective buyers access to their property for inspection and final viewing before completion. Well-respected real estate professionals and attorneys have differing opinions on this provision when it comes to a buyer’s right to carry out a post-hurricane re-inspection to ensure the property is in the same condition it was when the sale was made. Common sense would dictate that a buyer would have this right, but some argue that once a buyer has exceeded their inspection deadline, this area of ​​the contract does not provide the right to revisit the property for another inspection.

The final area that has created significant confusion that is outside of, but still very much related to, the contract of sale is the assignment of benefits under a seller’s homeowners insurance policy. In principle, under certain circumstances, the seller can assign the proceeds of his insurance policy to the new buyer so that the new buyer can make the necessary repairs. I urge everyone to consult with a knowledgeable insurance agent and/or real estate attorney to ensure proper steps are taken.

Now that I have discussed some of the contractual matters for current pending real estate transactions, let’s turn to the future of the real estate market after Hurricane Ian. In general, after a natural disaster, prices tend to increase. According to a recent article published by Florida Realtors, “Veros Real Estate Solutions estimated that home prices in five metro areas were 7% above the national average in the 12 months following a severe storm.” If we’ve seen anything in the past few weeks, it’s that the people of Southwest Florida are a resilient bunch, and I have no doubt that we will rebuild even better than before.

The most significant factor that could hamper the recovery of our local real estate market is the cost and availability of property insurance. Even before this hurricane (which was historic in its size and devastation), the Florida property insurance market was badly battered and operating on shaky ground at best. It will likely require a combination of federal and/or state subsidies to attract the amount of private capital needed to sustain an affordable and sustainable Florida property insurance market.

Regardless, we’re selling homes again and I’m confident that our housing market will prove as resilient as its citizens. We remain committed to helping those in our South who have been hit so hard by the storm and we will do what we can to put them back on the road to recovery.

Peter Crowley is President of the Re/Max Alliance Group.