Hey there, as a buyer you find yourself in love with a home that has a history of settlement or maybe you are thinking of selling your home and you know it has previous settlement issues. What now?
First of let’s talk about what settlement is and isn’t. Settlement is the movement of a home or structure or the movement of the foundation about the soil on which it is constructed. Any building can exhibit signs of settling, this is not limited just to homes. Florida has a history of buildings that settle over time due to differing and unstable soils, water drainage, or poor construction, or even a combination of these causes. Settlement is different than a “Sinkhole.” Many people confuse the two or even try to use the words synonymously and these are not the same. Sinkholes will generally leave a structure unsafe for use or even swallow a structure whole.
Settlement issues are usually repairable but the repairs can be very expensive. One of the most common methods of repair are to dig under the foundation of the home and install piers and grout. The piers are then extended until they reach a firmer soil sometimes 80 feet or more below the surface. Afterwards a concrete grout is pumped in to further ensure stability of the foundation. Depending on the extent of the repair needed and the depth of the repair the costs can well exceed $100,000. Generally speaking this is not an insurable repair in the state of Florida anymore. Some policies will still include settlement coverage but most do not. However, the majority of policies do include coverage for “sudden ground collapse,” which is a synonymous word for “sinkhole.”
So, what to do if you are looking to buy a home that has history of settlement. First, hopefully the settlement has been remediated or repaired. In this case you would ask the seller for all of the pertinent info regarding the settlement and remediation that was completed. Your insurance company will require all of this documentation in order to bind an insurance policy on the home. You will also want to hire an inspector to check the home and may even employ the services of a structural engineer if you or the inspector notes that there is additional damage or issues that seem to be unrepaired. Some lenders will also require the documentation and may not want to lend money on a home that has history of settlement. If you are using FHA or VA financing this is something to check before you get too deep in the purchase process, these types of loans are stricter when it comes to settlement history.
If the remediation has not been completed or there are additional issues found during inspection you may not want to continue with the purchase as it could be difficult if not impossible to secure homeowner’s insurance. If you can’t get insurance you can’t get a mortgage in most cases.
If you are the current owner and you have made the decision to sell your home with a history of settlement, consider the following. If remediation has been completed you will want to gather all pertinent documentation to provide to any prospective buyers. They will need it to apply for insurance and mortgage. You will also want to make sure to properly disclose the issue and remediation up front. There is no point in surprising a prospective buyer or their insurance company if you know about the issue ahead of time. If may also be beneficial to talk to your current insurance company to determine if they would write a new policy and at what rate for a prospective buyer and new owner. Finally, if you know of issues that have not been repaired it is a must to disclose these issues to your Realtor ahead of time. There are ways to help and hiding or not disclosing is not going to get you very far.
Finally, the value of a home or building with a history of settlement be significantly and negatively impacted. If repairs are not completed it will make it challenging if not impossible for a buyer to get insurance and/or a mortgage. Even if repairs have been completed there is usually a negative impact to the value of the property. Challenges arise with insurability that some buyers just don’t want to deal with. Also, there can be a “stigma” associated with settlement or worse, sinkhole homes that some buyers just won’t be interested in owning. In our opinion, as long as the remediation has been completed properly the home should be just as strong or stronger from a foundation perspective as any other home in the area.
If you are a buyer considering purchasing a home with settlement history make sure you contact a knowledgeable Realtor and hire a good home inspector that is on your side in the process.