Risk of Loss in Real Estate Transactons

What happens if a manufacturer purchases scrap metal from a vendor and while the metal is being transmitted it is destroyed in an accident? Who is responsible for the goods sold? Similarly, what happens if you enter into a real estate contract and before the closing takes place the home is destroyed/damaged? Is the buyer or seller responsible? Does the contract still have to go through? Or is it cancelled? Is the money refunded?
The dominant rule across several States is that the party who has possession of the property bears the risk of loss. The party who bears the risk of loss is therefore financially responsible for the loss, regardless of how unfair it may be. Thus, under the general rule, the risk of loss is generally on the seller, but once the closing and/or possession is transferred, the buyer becomes responsible. Of course, other arrangements can be made so long as the parties mutually agree.
A number of other states, however, follow the equitable conversion doctrine. This theory maintains that the purchaser equitably becomes the owner of the property when the seller has fulfilled all essential and material conditions of the contract. Although the closing may not have occurred, the law treats the purchaser as the true owner, thus making him/her responsible for the risk of loss.
Contact us with real estate transaction questions.

Scroll to Top