A real estate perspective on the flood

It has brought a smile to my face several times this week seeing mud-caked volunteers, exhausted but proud, walking the streets of our city. Like many of you, I have been encouraged to see so much generosity and neighbourly love extended to our flood victims and I look forward to seeing our city fully cleaned and rebuilt.

I’m sure all of the flood victims have already contacted their insurance companies and most will have received disappointing news. Flood damage is not covered by home insurance policies. However, if you happen to have damage from sewer backup or electrical issues, there may be a chance for coverage, so it’s always worth checking!

For homeowners, this will be an uncertain and expensive time… working to remediate your property and figuring out how to receive financial aid from the government. For those buying or selling one of those homes, it can add even more uncertainty.

If a home had been purchased before the flood but possession is not until a later date, this poses an interesting legal question for both buyer and seller. The clause in the standard residential purchase contract that relates to this issue is as follows:

“4.2 When the Buyer obtains possession, the Property will be in substantially the same condition as it was in when this Contract was accepted.”

The clause typically allows for minor wear and tear from the time the contract was accepted to the possession date, which can be months later. However, real estate lawyers are familiar with using this clause in relation to floods or other more significant changes to the home before possession and have a fairly standard procedure. The Seller has to repair and replace any affected items in a workmanlike manner with like kind and quality. If this is not done prior to possession, the lawyer will hold back an agreed-upon amount of money until the work is done (or until an agreed-upon deadline, at which time the money will be released to the Buyer to complete the work themselves).

The difference in this case is the pure scope of the problem. For homes that had minor flooding in the basement, the standard procedure can be used. However, for homes that had flooding come up into the main floor of the home, there are questions of structural integrity that are raised and, for some properties, the home may not be salvageable… or may simply not be worth salvaging. Sometimes the land value of the property is high enough that it is worth tearing down the damaged home and rebuilding.

In this case, it is impossible to provide the Property in “substantially the same condition” and so the Buyer may be able to legally terminate the contract due to fundamental breach of contract. It is important to note that this situation must be assessed on a case-by-case basis by your own real estate lawyer. It will take a lot of discussion, careful thought and negotiations with the other side.

Another major question being raised is how this flood will influence property values in the affected areas. We are being advised by the Alberta Real Estate Association not to close a possession on any home affected at this time. Obviously new listings will not be coming on the market in areas where there is still city remediation going on – power, infrastructure, etc., so sales activity will slow in many desirable neighbourhoods of town for the short term. But, once people are ready to start buying and selling in those areas again, extra caution will be needed by buyers and extra disclosure by sellers. Homeowners who are remediating should ensure a professional remediation is completed to avoid the chance of mold in the home. All documentation should be kept, photos taken, etc., in order to give comfort to any future purchaser that there are no outstanding issues or health risks. Buyers may want to consider having a professional indoor air-quality test completed along with the standard home inspection.

For condos that have been affected, money will need to be taken out of the reserve fund to cover pumping out parkades, repairing damage to mechanical/electrical systems and so on. Hopefully some money from the government will cover this. In the meantime, buyers need to carefully check the financials of any building in which they are considering a purchase.

As a side note, this is a great time for all homeowners to think about preventive measures to avoid getting water in your own home, even if you don’t live near a river! Install a sump pump in the basement, improve grading around your house so that rainwater drains away from the foundation, check around the exterior of your home for areas that might need caulking or sealing. Water is one of the biggest concern for purchasers so it’s important to do regular maintenance of your home to keep it dry!

If you have any questions or want to discuss how the flood may affect your real estate decisions down the road, please don’t hesitate to call me at 403-852-0262.

Note: I have more detailed instructions from the Alberta Real Estate Association for buyers and sellers whose transaction is directly affected by the flood so contact me for their full article if you like.

*Disclaimer: This column is intended to give general information and is not intended as legal advice. Please contact your lawyer if you have been affected.