The Effects Water Damage has on Home Value and Real Estate Transactions
Current Real Estate Climate
It is no secret that the current real estate market is booming with low-interest rates, high demand, and low supply. Basic economics will tell you that when the desired purchase is in low supply and everyone wants in, competition will start to escalate far beyond what is normal. In North Carolina, home closings are going for 41% over the asking price. The importance of this percentage points to how homeowners are taking advantage and maximizing the value of their homes. But that is only the good half of what is currently going on. The bad side can be found within the competition.
In this current real estate climate, competition is fierce and with all that money being thrown around, getting a quick close is top of mind for most people rather than maximizing the power of their money. As the seller, you want to get as much as you can out of your home because maximizing your initial investment to walk away with profit for your next home purchase is ideal. As the buyer, the same rings true because wanting to get the most out of your money is the best-case scenario.
Maximizing your Investment/Buying Power
In a real estate transaction, there is a delicate balance of power between the buyer and seller due to being in the “sellers’ market” that we are in currently. The motivation for a seller is to get the house sold quickly and from the buyers’ standpoint, you want your offer to be accepted amongst the crowd. If many buyers are interested and there are a lot of offers on the table, there is a little less room to negotiate price, but that room widens if there is evidence of past water damage, such as leaking appliances, exterior and interior cracks that are accompanied with signs of moisture and efflorescence, and mold starting to form in the basement or crawlspace. All these issues lower the value of the home and therefore could lower the price for you. Water issues such as those above can be found in 60% of homes and in 97% of homes with basements. This is where the buyer, your advantage comes in. During the real estate transaction process, there are three key phases where you can find potential issues that can help the asking price drop by a considerable amount.
- Searching Phase/First Walk-Through- This is the time frame where you have seen your first view of the exterior and interior of several potential homes at events such as an open house. This is where water issues or signs of water damage can be observed firsthand and you can make a note of them for the future (location, the extent of damage, etc.)
- Inspection Phase- This phase is where you have committed to buying the property. You hire a professional inspector to walk through the home and make note of any issues that could affect the overall price. As the buyer, walk alongside the inspector and make sure you are aware of all the issues that are noticed.
- Closing Phase/Final Walk-Through- This is the last chance you will get to find any moisture in the crawlspace or basement mold issues, standing water, or any other water issues/damage that could be present and may have been missed. If additional issues are found that were not disclosed during the past 2 phases this is the last chance you will get to speak up and negotiate closing costs.
How Water Damage/Issues can Affect the Value of the Home
As the buyer, no liability falls on you unless you decide to buy a property with all the issues intact in hopes of getting the price reduced. The good news, in this case, is that the value will likely be reduced because the seller will compensate the deal by subtracting the price of the repair from the final asking price. The seller can handle the real estate transaction one of three ways:
Option 1: Cover the cost of the repair before divulging the permanent price of the listing so that the market value is not affected.
Option 2: The seller reduces the official market value of the home ONLY by the amount it takes to cover the repairs.
Option 3: The seller refuses to lower the asking price of the home and sells property “as is”, making the buyer responsible for waterproofing repairs.
Price of Repair
Water issues/damage on average will cost a homeowner $1,000-$4,500 depending on the extent of the damage. If the damage is extensive, it could cost anywhere between $5,000 to $7,000 on average. The most extreme case would be flooding and that could cost in the realm of tens of thousands of dollars to repair.
In terms of property location, if a house is located within the area of a floodplain, that could take on average $11,000 off the asking price based strictly on the higher chance of water issues/damage happening in the future. If a house has a latent history of constant water damage occurring, that could cause a property to face its largest reduction in value, approximately 7.3 percent of its overall value.
The numbers listed are averages based on the current real estate market condition. The average cost of waterproofing solutions can fall anywhere between $1,000-$4,500. To be more specific, here are the average costs you should expect to pay when you repair water damage in your home:
- Vapor Barrier- A vapor barrier typically comes in the form of a 14-20 mil durable liner that’s function is to block water vapor and to control moisture levels. The average cost of this installation is either $2,500 out of pocket or $2,500 off the price of your home. However, a lasting benefit of this will be the 1-day duration of install and the 22% average savings on cooling energy as well as a 10% average savings on heating energy.
- Encapsulation- An encapsulation system covers the masonry pier, foundation walls, and floors with vapor barriers, involves sealing vents to prevent outside moisture from entering. The average cost of this solution is either $2,500 out of pocket or $2,500 off the price of your home. This system will lower your energy bills by 20% and over the course of just seven years, it pays for itself. It also provides you with extra storage space that is attractive during the selling process and will increase your home’s overall value.
- Full Waterproofing System- A full waterproofing system includes a vapor barrier, encapsulation system, dehumidifier, drainage system, and sump pump installation. The average cost of this full system is either $3,000 out of pocket or $3,000 off the price of the home. The dehumidifier added-on will guarantee that the air from your crawlspace or basement will be the healthiest possible. The drainage system and sump pump will divert any water intrusion out of the home and keep the previously affected area free of water and therefore remove any chances of more damage occurring.
In a real estate transaction, as both the seller and the buyer, you want the process to go as smoothly as possible. A good way to keep things running smoothly is to be proactive in your decision to repair any damage. Being proactive will save you thousands of dollars in the long run and potentially add 10% on average to the value of your home. Being reactive means that you will have to throw money at mold remediation services, pest infestation services, beam/floor support repair services, etc. Not to mention the cost you will be paying to your individual health or the health of potential buyers.
All prices of repair are from Carolina Foundation Solutions proven waterproofing systems that have kept both the Carolinas dry and moisture-free even during the wettest rainy season. Get the most out of buying or selling a home and call us at (877) 770-7050 or contact us online to schedule a FREE inspection today!