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Robert · Guest

Our new house was flooded and the builder has accepted responsibility
for all damages and is in the process of repairing the house. Because I have to disclose this information to new buyers, how will this affect the appraisal value of our house? How will loss in value be determined?

nemmar · Site Admin

Robert,

I'm glad to hear that you're an honest person and are going to disclose the fact that your house had/has a flooding problem to potential buyers. There are not a lot of people honest like yourself that would disclose that fact to buyers unless there was no way to hide the signs of flooding. There are very few Realtors that I have ever encountered that would disclose that problem to potential buyers. My decades of experience in Real Estate has taught me that many people would rationalize their actions and try to hide the problem condition from buyers to maximize their own profits.

Now for your question on how the flooding in your house will affect the appraisal market value of your home:
First of all, what caused the flooding? Was it just a very rare occurence, like a torrential rainy period, that is NOT likely to happen again? Or was it caused by water problems that are likely to happen again, such as, with a high groundwater table in your area?

The reason I ask those questions is because that will be important for the potential buyer's of the house and the real estate appraiser. If the flooding only happened once and was caused by a very unusual condition that is not likely to occur again, then it's not a big problem. It's like an abnormally big storm hitting your area and damaging the house. Once the repairs are made then it should have no negative affect on the market value of your home since it won't happen again in the forseeable future. However, if the flooding is caused by a problem condition, such as a high groundwater table, which is probably going to occur on a regular basis, then it WILL have a negative affect on the market value of your house.

These are the questions your appraiser should ask you if he/she is aware that your house had/has a flooding problem. You should have the answers and information ready to provide him/her with. From an appraisal standpoint, anything that has a positive or negative affect on market value MUST be included and calculated into the written appraisal report for the subject property. If a negative condition/characteristic/factor of the subject property (such as your flooding problem) will turn away any typical potential buyers for your house then the appraiser must take that into consideration in their appraisal analysis. The appraiser basically tries to put themselves into a potential buyer's shoes and decides what a potential buyer will pay for your real estate with all the known positive and negative aspects of the subject property.

So for example, let's say that your appraiser determines that typical potential buyers looking for a home in your area will pay $20,000 less for your home due to the flooding problem. This is because the typical buyer would obviously pay more for a comparable house in your area that does NOT have a flooding problem. The appraiser will then adjust the market value of your property by about $20,000 in their report.

Guest

Thank you for your reply. The flooding was caused by a stopped up storm drain due to mud coming from a new unprotected building site. It was a very rare occurrence, like a torrential rainy period, that is NOT likely to happen again.

This is my understanding of what I should do; Have the house appraised immediately after all repairs have been completed. Disclose the information to the appraiser about the flood. Show documentation in reference to the repairs. Determined how much value the house loss due to the water damage and flooding. If there was any loss in value have the builder pay the difference.

If you have any additional recommendations please let me know.

Thank you,

nemmar · Site Admin

Robert,

The steps you mentioned in your last post are correct. That should be enough to identify the negative affect on market value and give an accurate amount for the builder to compensate you.