Risk of Loss refers to whether it is the seller or buyer who bares the risk of damage or destruction to the property during the executory period (the time in between contract signing and closing). Pursuant to Maryland common law, the buyer is said to take equitable title to the property upon signing the contract and thus it is the buyer who then bares the risk of loss for accidental damage or destruction to the property before the closing date (if the seller causes the damage, the seller will rightly be responsible for the loss).
To illustrate, if seller and buyer sign a contract on January 1st for the purchase of a home, and closing is to take place on February 1st, but the house burns down after being struck by a bolt of lightning on January 15th, under Maryland Law, and unless the contract stated otherwise, given the buyer took equitable title on Jan 1st it is the buyer who is responsible for the loss.
As you can see, who bares the risk of loss is one of the most critical terms in the contract of sale and thus it is wise that both parties seek the assistance of a REALTOR who is well-versed in contract law during the negotiation process.
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