Earthquakes and Real Estate Transactions

by Mary Pope-Handy, Clair Handy | Aug 27, 2023 | Homes & Housing Market

Original Date of Publication: October 30, 2007

Earthquakes and real estate transactions are not good go-togethers, but it can happen that they may coincide. They did for my husband and me on our first home.

Home in Santa Cruz, CA, after Loma Prieta Earthquake of October 17, 1989. Photo by Jim Handy.

A couple of hours ago, at 8:04pm, Silicon Valley experienced a “moderate” earthquake. The USGS (Unites States Geological Survey) finds it to be 5.6 on the Richter Scale.

My Experience Tonight:

When tonight’s quake happened, I was not at my Los Gatos home, but rather on the campus of Santa Clara University, in the Adobe Lodge, saying goodbye to some friends after a very pleasant evening. We’d attended a Jesuit School of Theology at Berkeley’s “Theology in the City” lecture on Muslim-Christian Dialogue, followed by a wonderful reception.

October 1989, photo of baby Brian Handy’s stroller in Santa Cruz after the Loma Prieta Earthquake.

As we crossed the main room of the Adobe Lodge, sounds like someone stomping on the roof commenced. Then the noise spread. As the roof cackled and groaned, we realized – about the time we started to sense it – that this was an earthquake.

It’s not untypical to hear it before you feel it! By the time my friends and I figured out that this was a seismic event, we were in the foyer. A chandelier swung pretty voilently over the head of one of the guests. We were all frozen in place and I called to the person under the light fixture to move. He didn’t. Finally, I grabbed his arm and pulled at him while explaining why I was tugging. (The biggest danger in earthquakes is from things falling!)

The shaking stopped. We were all fine. The historic adobe building had seen much bigger challenges than this moderate quake.

Immediately after the earthquake, I tried to phone home to check on Jim and the kids – no luck. Tried to call my dad at Belmont Village in San Jose. No go there, either. The cell phone couldn’t get through to anyone. I was worried that cell towers were down. After about 15 minutes, though, apparently the circuits were calm and I got through. They were fine and I could rest at ease. Too many people had the same idea as me and we were all flooding the phone lines with calls to loved ones.

Back to Business:

Earthquakes and real estate transactions – buying and selling real estate after a temblor

Meanwhile I also received an email from some clients who’d like to see the home they’re buying again before removing contingencies. They wanted to make sure nothing had happened to the home during the shake up. Who could blame them?

In fact, Jim and I were in escrow to buy our first home when on October 17, 1989, we had the devastating, 6.9 “Loma Prieta Earthquake” here. It was two hours after we had done our Final Walk Through on our starter place in the Cambrian Park area of San Jose.

As you might imagine, we did not close on time. But we did close.

With images of the Bay Bridge and other roads collapsed, mountains falling onto highways, and homes burned to the ground from fires caused by broken gas mains, the lender was more than a little nervous. Luckily, the home we were buying was totally empty – so there was no broken glass or other items laying in wait in the new resale wall-to-wall. No damage at all.

But the lender wanted proof, so we had to have all new inspections and a new appraisal. Time and money.

Additionally, the road to the nearby beach community of Santa Cruz, where we’d been renting, was mostly impassable due to landslides from the quake. The moving truck’s alternate route was blocked by collapsed bridges. We closed 2-3 weeks late and a little poorer from extra costs, but glad to have it all behind us.

So what happens if an earthquake strikes in the middle of your sale or purchase?
It depends.

If it’s a small or moderate earthquake with no damage, nothing happens. You might double check to verify there’s no damage, but that’s about it.

In a serious quake, with or without damage, the brakes go on! Lenders are always worried about making a bad loan, so they want to verify the condition based not on your word, but based on all the professionals’ estimation of condition.

Who pays for that?

It depends on what the contract says, like always. It can probably be negotiated. But the buyer usually has the right to back out of the deal if spooked.

Why? A little clause in the contract that references “risk of loss” is usually the key. That means if there are any catastrophes before close, the seller is the one who bears the liabilty in most cases. Here’s what one of our locally used contract forms says on Risk of Loss:

“If the Property’s land or improvements are materially damaged prior to Close of Escrow, Buyer shall have the right to terminate this Contract and recover the full deposit. If Buyer elects to complete the purchase, Buyer shall be entitled to an assignment from Seller of all insurance proceeds covering the loss.”

So even if a buyer has removed all contingencies, if a big quake hits, the buyer can back out. If the house burns down from a fire, the buyer may be able to complete the purchase and take the insurance assignment from the seller. And if a lender requires all new inspections, it may be a negotiable cost between buyer and seller.

In conclusion….

Most earthquakes, happily, are small ones. Supposedly they often relieve pressure from the big faults, making large earthquakes less likely or at least less dangerous. That’s the hope, anyway.

Of course, the chance that this is a “pre-quake” and that a bigger one is coming in the next 7 days is about 30%. So we’re on alert.

Scary stuff? Well, a little. The ghosts and goblins of Halloween might spook some people. But for me, a strong earthquake in the middle of a real estate purchase or sale – well, that’s scary!

Happy Halloween, one and all. Be safe!