Can I Sell My Home With an Open Insurance Claim?

Navigating normal real estate transactions can be complicated enough, but then you run into unique situations like selling a home with an open insurance claim. Can you even do it? What are the implications? Who gets the money, and how does it affect the sale?

Understanding these factors is crucial for homeowners to make informed decisions and sell their homes fast.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Get a Cash Offer on Your Home With Cash Is King.

Want to skip the hassle of selling your home? We’ll make you a Guaranteed Cash offer. Get started now for free!

Get Started

Legal Considerations and Disclosure Requirements

Legal Implications of Selling with an Open Claim

Selling a home with a pending insurance claim introduces unique legal complexities. You’ll need to make sure you have documentation to clarify the following questions:

Has the insurance company been informed you intend to sell the house?
Does your insurance policy allow you to transfer benefits?
Who will receive the payout from the insurance company?
Are you repairing the damage before the sale?
Are you adjusting the sales price in light of the open insurance claim, remaining damage, or any other reason? By how much?
Is the damage or repair something you’re required to disclose to the buyer?

If your communication with the insurance company, your real estate agent, or the buyer or buyer’s agent becomes muddled, you may find yourself in hot water due to a misunderstanding.

Disclosure Obligations in Property Sales

Transparency is paramount when selling a property with an open insurance claim. In Oregon, as in many states, the seller’s disclosure directly asks about the existence material defects and any related insurance claims. Thus, if you have an pending insurance claim, your disclosure must state the extent of the damage, that a claim has been filed, and whether or not repairs have been performed yet.

While can sell your property with any amount of existing damages, up to and including selling a home with code violations or abandoned repairs, failure to disclose such information can lead to legal repercussions. Sellers must provide comprehensive details about the property’s condition, including any open insurance claims, to potential buyers.

This can scare off potential buyers, but don’t be tempted to lie on your disclosure. While it’s sometimes difficult to prove that a seller had preexisting knowledge of a defect in a home if the damage isn’t immediately apparent, it’s easy for a homebuyer to check for home insurance claims and prove you did.

If you think your seller’s disclosure might make it difficult to find a traditional homebuyer, consider finding a cash buyer instead. Cash buyers don’t have to deal with getting a mortgage lender’s approval, making it far easier for them to buy homes with defects.

Options for Handling Insurance Claims During the Sale

In general, when you’re selling a home with an open insurance claim, you have two main options: transfer the insurance payout to the buyer, or keep the payout and lower the sales price. If you’ve already completed the repairs that were the subject of the claim, this may be a non-issue, since the purpose of accounting for the insurance claim is to help the buyer pay for repairs.

Assigning Insurance Claims to Buyers

One option for homeowners selling with an open insurance claim is to assign the claim to the buyer. Assigning the insurance benefits to the buyer allows the buyer to directly receive the insurance payout instead of you. However, this process requires careful legal consideration. It’s crucial to have the agreement thoroughly reviewed by an attorney to ensure clarity and enforceability.

If your policy has an anti-assignment clause, this option may not be available to you. In most states, if a claimworthy incident has already happened—referred to as a “post-loss claim”—and you simply want to change who gets the payout, you can usually request your insurer to assign benefits to a third party without much trouble. However, Oregon courts may enforce anti-assignment clauses more often. Be sure to read your home insurance policy closely and consult with an attorney before assuming this route is an option.

Retaining Insurance Benefits

Alternatively, sellers may choose to retain the benefits of the insurance claim and adjust the sale price accordingly. This approach often involves reducing the property’s price to account for unrepaired damages.

It’s essential to clearly document how much you’re lowering the sale price in the sale documents. This transparency helps establish the estimated cost of repairs for the buyer and the rationale behind the price reduction.

You home insurance policy may mention “recoverable depreciation,” which refers to the difference between the actual cash value of something versus the cost to replace it. Sellers should be aware that retaining benefits might waive their ability to recover the depreciation amount, as the condition for such recovery often includes completing the repairs and submitting the receipts. If the home is sold before being repaired, this may be impossible, and you’ll be paid only the actual cash value.

Preparing to Sell Your Home with an Open Claim

Consultation with Professionals

Engaging with professionals such as attorneys, real estate agents, and insurance appraisers is vital in preparing for the sale of a home with a pending insurance claim. An attorney can offer legal advice on the implications of the sale or claim disputes with your insurer. Real estate agents can provide insights on market conditions and help in setting the right price, considering the open claim. Insurance appraisers and home inspectors play a crucial role in assessing the damage accurately, which is essential for proper documentation and fair valuation.

Documenting Damages and Price Adjustments

Documenting the extent of damages and any price adjustments is a critical step in the selling process. It involves:

Recording the condition of the property with detailed descriptions and photographs.
Providing a clear breakdown of the reduced sale price due to unrepaired damages.
Using a seller’s disclosure form to inform buyers about the damages and the open insurance claim.
Ensuring all documentation is precise, transparent, and easily understandable.

Accurate documentation protects the seller’s interests and provides the buyer with a clear understanding of the property’s condition. A common buyer negotiating strategy is to use a clear need for repairs to lower the sale price of a home or obtain a repair credit, so clearly showing that the repairs have been accounted for can preserve your negotiating power.

Skip the Hassle: Selling Your House As-Is for Cash

Need to sell your house fast and want to avoid the legal complications of your open claim? Selling your home as-is means that repairs aren’t a factor in negotiations. Fast, streamlined sales are one of the top reasons to sell to a cash buyer. The majority of these cash buyers, such as Cash is King, are ready and willing to pay for your home as-is.

Depending on the extent of damage, attracting a traditional buyer may be difficult, never mind negotiating an uncertain pending insurance claim. A cash buyer can be your ticket to a smooth, hassle-free home sale.

Are You Selling a House With an Open Claim?

Selling a home with an open insurance claim involves navigating legal complexities, making informed decisions, and ensuring thorough documentation. Understanding the options available, whether assigning the claim to the buyer or retaining it, is crucial. The importance of professional advice and transparent dealings cannot be overstated. However, with the right assistance, you can indeed close a successful sale for your home while an insurance claim is pending.

FAQs

Can I legally sell my home with an open insurance claim?

Yes, you can legally sell your home with an open insurance claim. However, it’s essential to disclose this to potential buyers and consult with legal professionals and your insurer to ensure the process goes smoothly.

What should I consider when deciding to assign the insurance claim to the buyer?

It’s important that both parties understand the terms and that you determine whether the assignment is enforceable in your state. Assigning the insurance benefits can be used as a negotiating tool, so carefully consider how it may affect the sale price of your home to get the best price.

If I retain the insurance claim, how does it affect the sale price?

Retaining the claim often means reducing the sale price to account for unrepaired damages. This reduction should be documented clearly, reflecting the cost of repairs in the adjusted price. In addition, be aware that you may lose some of the insurance payout because you won’t be able to complete repairs.

What is the role of real estate agents and appraisers in this process?

Real estate agents help set a realistic price for your home as it would be with repairs and manage the sale process. Appraisers and inspectors provide accurate damage assessments, crucial for adjusting the price to account for repairs and insurance claims.

How do I ensure legal compliance when selling with an open claim?

Compliance involves understanding the terms of your insurance policy, disclosing all relevant information to buyers, ensuring legal documentation is in order, and possibly seeking legal advice to navigate the complexities of anti-assignment claims in your situation.