Can you afford to buy an unrepaired sinkhole home?
If you’ve found the perfect home for yourself, but the seller informs you there is an open sinkhole claim, you very likely have some questions. What does this mean regarding your potential purchase of the home? What information should you have? What if you can’t afford it out right?
Is there just a claim open?
Your first step is to find out whether the home has a confirmed sinkhole, or the home just has an open claim on it – there’s a difference. Just because there’s a sinkhole claim doesn’t mean there’s a sinkhole!
Take a look at the engineering reports from the insurance company. If the engineer did not actually find a sinkhole, it’s likely that the current homeowners accepted a small settlement and decided to move. If this is the case, you may not be required to do any major repairs, and it may not be difficult for you to purchase and get homeowner’s insurance.
Also, if you don’t have the cash to buy the house outright, an open sinkhole claim shouldn’t really affect your ability to get a loan, especially if it’s documented that there are no sinkholes present.
Is there a confirmed sinkhole?
If the engineering report confirms a sinkhole, however, this situation gets a bit more complicated. First, the report will recommend a repair plan for the home. Depending on the situation, you may or may not be required to follow this plan exactly.
Once you have this information, bring it to your lender to see if they would be willing to provide you with a loan for this home at all. If a home has an unrepaired sinkhole, many, if not all, lenders will refuse to provide a loan.
This is the case with insurance companies, as well; most will refuse to cover a home with an unrepaired sinkhole. That being said, unless you have the cash up front to purchase and repair the home, your best bet is to walk away and find another one.
Loyds of London
While I would suggest you walk away, I do feel obligated to advise you about Loyds of London, the only insurance company I know if that will provide coverage for an unrepaired sinkhole home.
However, if you do approach Loyds and they do accept your home, consider yourself lucky, and be aware that you will be paying an outrageous premium for coverage. You should expect to be paying three to four times as much as you would pay for a non-sinkhole home. Take this into consideration when you think about how much of a home you’re able to afford.
If you’ve gone through understanding the state of the home, have found a lender and insurance coverage, and are still interested in pursuing the home, your next step is to talk about the repairs themselves. First, speak with your lender to see what repairs they will require you to do. They may require you to follow all of the recommended repairs, some of them, or do something different.
For example, you may want to see if they will accept a simple underpinning of the home, or even just repairing the cosmetic damages if the situation permits. This is an incredibly important conversation to have before purchasing the home because you want to be sure you can even afford the repair costs that you will be required to pay.
Purchasing the home
Finally, when purchasing the home, taking these repair costs into consideration. At the end of the day, the price you pay should be the market value minus the agreed-upon repair costs, and maybe even a bit less to account for the stigma of a sinkhole home. This stigma can lower the value of the property, so look out for this.
The best way to make sure you’re paying a fair price is to speak to foundation repair companies yourself. Once you know what your lender requires you to repair, you can get an estimate and factor that into your purchase.
At the end of the day, you can get a great deal on an unrepaired sinkhole home, but you need to be aware of the risk. Educate yourself on the value of the home, the cost of insurance, and how much you will need to spend to fix it. If these are all within the realm of possibilities financially, welcome to your new home!