Considerations When Natural Disasters Risk Impacting Real Estate Transactions

Wherever you are in the province, licensees need to understand the unique challenges clients can face when it comes to the possibility of natural disasters. While wildfires and flooding are more likely in some parts of B.C. than others, the risk is dynamic and changes year over year. Licensees should be aware of these risks and ensure their clients have the information and resources they need to make informed decisions when buying or selling real estate.

Advise Clients to Seek Insurance and Legal Advice

If you are representing a seller in an area prone to wildfires or flooding, it is prudent to advise the client to seek professional advice from their insurance provider and legal representative. Sellers should know whether they have coverage if their property is damaged or destroyed by a natural disaster during the transaction, and what the ramifications are if that damage impacts the sale of the property.

The standard form purchase contract used by most licensees stipulates that properties must be turned over to a buyer in substantially the same condition as when the buyer viewed it. This may mean that even if a buyer submits a condition-free offer, or waives conditions after satisfying them, the transaction may collapse if the property is damaged or destroyed, leaving the seller to deal with the consequences.

When working with buyers, it is important to advise them to speak to insurance providers to determine what type of property insurance is available. Mortgaged properties require fire insurance as a condition of the mortgage, but flood insurance is not required. In some cases, buyers with accepted offers who have removed financing subjects have found that insurance companies have withdrawn their approval to insure the property due to the risk of damage from flooding. When this happens, the lenders may also withdraw their approval for funding of the mortgage.

The Ministry of Public Safety and Solicitor General has said that residential flood insurance may be limited in higher risk areas. This information may cause a buyer to reconsider purchasing a property where flood coverage is not available. If a buyer wishes to include a condition, term or clause pertaining to wildfires or flooding in the purchase contract, it should be reviewed by a lawyer to ensure it is enforceable.

Only Act in Your Area of Expertise

Providing your client with advice that may not be accurate or complete just to appear more knowledgeable, or providing real estate services in relation to a property in a community or region that you’re not familiar with can put both you and your client at risk. The Real Estate Services Rules outline that providing incompetent service could rise to a level of professional misconduct. Protect yourself and your client’s best interests by ensuring your clients receive the most accurate information. Where appropriate, this should come from a third party.

It is prudent to request a written confirmation from your client when they provide you an instruction based on external advice so that you can accurately document the conversations you have had.