A home selling question (1 Viewer)

[staphory]

My wife's house was heavily damaged in the recent tornado. It was for sale at the time. The insurance company is going to pay for the repairs needed to make it habitable as well as bringing it up to code. So far so good.
Her friends want her to basically take the insurance money and sell the property as is. I want her to repair it then sell. Her friends seem to think that the property values have dropped due to all the damage in the area. I think once the neighborhood is cleaned up it won't be an issue. I think it might be better because the homes around her will be either new or newly renovated.
I also don't think the insurance company will just cut her a check and she just walk away.
Anybody got any experience at all with something like this?

 

[bclemms]

Telling you from experience seeing areas like this it's kind of tricky.

After a big hurricane it takes years for the real estate value to climb back up.

In widespread flooding the following insurance regulation makes home sales very tricky depending on zones.

In tornadoes though it's pretty simple. If the home is in an area where most homes were insured then the values will recover, recover quickly and with all the insurance and FEMA money dumped into a generally speaking very small area the improvements on the homes that happen around you make real estate prices recover quickly and tend to jump above where they were prior to the tornado pretty quickly.

If the homes were mostly lacking insurance then get any value you can and run or you will have to sit on the property for a very long time to get comp value because it takes quite a while for that area to recover, if it ever does.

In tornadoes it can be quite different from one street to the next.

As for your question, I'm really not sure what options you will have and should wait for someone who knows.

Sorry to hear about your wife's house being damaged. Was it wind damage or from a tree falling on it?

 

[staphory]

Telling you from experience seeing areas like this it's kind of tricky.

After a big hurricane it takes years for the real estate value to climb back up.

In widespread flooding the following insurance regulation makes home sales very tricky depending on zones.

In tornadoes though it's pretty simple. If the home is in an area where most homes were insured then the values will recover, recover quickly and with all the insurance and FEMA money dumped into a generally speaking very small area the improvements on the homes that happen around you make real estate prices recover quickly and tend to jump above where they were prior to the tornado pretty quickly.

If the homes were mostly lacking insurance then get any value you can and run or you will have to sit on the property for a very long time to get comp value because it takes quite a while for that area to recover, if it ever does.

In tornadoes it can be quite different from one street to the next.

As for your question, I'm really not sure what options you will have and should wait for someone who knows.

Sorry to hear about your wife's house being damaged. Was it wind damage or from a tree falling on it?

it was both. Wind took the storage building and all the windows on the back of the house. And the patio roof too. Peeled that up and over, taking some of the main roof. Never found it. The storage shed just blew apart. It was old though.
A large tree fell on the corner of her house where her bedroom is. It penetrated the roof and ceiling. She wasn't there, she was staying with friends at the time.

 

[BIG E]

In most cases where there is replacement cost. you only get the depreciated value unless you actually do the repairs. IMO you should repair it then sell it.

 

[saintmdterps]

My wife's house was heavily damaged in the recent tornado. It was for sale at the time. The insurance company is going to pay for the repairs needed to make it habitable as well as bringing it up to code. So far so good.
Her friends want her to basically take the insurance money and sell the property as is. I want her to repair it then sell. Her friends seem to think that the property values have dropped due to all the damage in the area. I think once the neighborhood is cleaned up it won't be an issue. I think it might be better because the homes around her will be either new or newly renovated.
I also don't think the insurance company will just cut her a check and she just walk away.
Anybody got any experience at all with something like this?

The insurance company's job is to "indemnify" you, or to "make you whole again" after a loss. To that end, they will pay you for the damage sustained, but if you have a mortgage, they may include the mortgage holder on any settlement check. The insurance company has a duty to protect any lienholder as well, if indeed one is known.

Good luck, I know it's a pain.

 

[Scott5166]

If she is still paying on the house more than likely they will cut the check to her mortgage company and her. The mortgage company will probably have a hand in the repairs.

 

[rodgepodge9]

I have worked at a few banks over the past 10 years so just wanted to verify that what others are saying is spot on. If there is a mortgage, the insurance company will cut the check to you and the mortgage company. They will force you to repair. If you don't have a loan on it, then you should be able to go either route. Personally, i would still repair and then sell because while the numbers might work out theoretically, it might be harder to sell damaged, even at a fair value.

 

[Flipx99]

Agreed on the mortgage company being on the check, so there may not be a decision to make

Beyond that, depending on what your damages are, it seems like the house would further deteriorate without the repairs. Another issue is whether the home will be insurable without the repairs

 

[staphory]

Thanks for the input everyone.
She found out from the adjuster how much she could get. It would cover the remaining mortgage and leave her with a small sum of money. I told her that she would have to pay for someone to bulldoze the house and remove the debris. That would cost a few thousand itself. She's now onboard with repair and sell.

 

[dtc]

it was both. Wind took the storage building and all the windows on the back of the house. And the patio roof too. Peeled that up and over, taking some of the main roof. Never found it. The storage shed just blew apart. It was old though.
A large tree fell on the corner of her house where her bedroom is. It penetrated the roof and ceiling. She wasn't there, she was staying with friends at the time.

If she has a mortgage, the mortgage company is not going to just cut her the check and let her choose whether to make the repairs as this would leave them with a devalued asset. If she were to choose not to do the repairs, she may even violate the terms of her mortgage and lose her insurance policy.

I can't imagine that the home would sell for enough in damaged condition that it would be wise not to fix it unless it's in a terrible area.

Also, to counter what BC said above, it's been my experience that values quickly escalate in an area that's been subject to widespread damage. Hurricanes in particular have increased the value of the areas I've worked as long as I can remember which is Opal and Erin in Destin in 94.

Hire a reputable contractor who is experienced in insurance restoration. Have them review the estimate or re-write it and then do the repairs. Bring the house up to current code under the Law and Ordinance coverage and then sell it. That's what I would do.

 

[Devildog]

Also, to counter what BC said above, it's been my experience that values quickly escalate in an area that's been subject to widespread damage. Hurricanes in particular have increased the value of the areas I've worked as long as I can remember which is Opal and Erin in Destin in 94.

Is that because the homes have been rebuilt/repaired up to code?

 

[staphory]

If she has a mortgage, the mortgage company is not going to just cut her the check and let her choose whether to make the repairs as this would leave them with a devalued asset. If she were to choose not to do the repairs, she may even violate the terms of her mortgage and lose her insurance policy.

I can't imagine that the home would sell for enough in damaged condition that it would be wise not to fix it unless it's in a terrible area.

Also, to counter what BC said above, it's been my experience that values quickly escalate in an area that's been subject to widespread damage. Hurricanes in particular have increased the value of the areas I've worked as long as I can remember which is Opal and Erin in Destin in 94.

Hire a reputable contractor who is experienced in insurance restoration. Have them review the estimate or re-write it and then do the repairs. Bring the house up to current code under the Law and Ordinance coverage and then sell it. That's what I would do.

The idea was to pay off the mortgage company.

 

[Hedon James]

I second what everyone else has already said here. But as a real estate broker for about 25 years and a certified real estate appraiser for about 20 years, with many hundreds (if not thousands) of transactions of experience, I would only elaborate:

If a mortgage is involved, the lender almost certainly REQUIRED an insurance policy in an amount at least equal to the mortgage exposure. The insurance policy almost certainly was issued to "property owner, and/or property lender, ATIMA (as their interest may appear). As such, she likely may not have a choice.

The exception MAY be in the event that the mortgage balance has been significantly reduced AND the damage was so extensive that the insurance proceeds effectively pay off the remaining mortgage balance (thereby removing them from the equation), demolish the remaining home & removal of debris (eliminating the liability of an "attractive nuisance"), AND put some money in your pocket for the "loss of equity" that resulted from her prior payment efforts. If this scenario is on the table, congratulations....she owns a building lot, free & clear. And perhaps that will be attractive to a potential buyer...

If this scenario is NOT on the table, I always recommend that property owners make critical repairs. The reasoning looks like this: the house is obviously in bad shape and requires significant repairs for habitation; let's say estimates of $100,000 for a $200,000 home. In theory, your $200,000 home is now worth only $100,000. In reality, it's even less than that.

The problem is that everyone KNOWS the insurance estimate/contractor estimate is a little light. They can only estimate what they see and KNOW needs to be fixed. Anyone who has EVER done a renovation or rehabilitation of a home (and these folks ARE your buyer pool) knows that there are ALWAYS unseen problems and therefore, hidden costs, that are encountered along the way. Buyers KNOW this, and they allow for that, perhaps discounting the price an additional 20%-30% to allow for that. So your theoretical $100,000 home is actually a $70,000 or $80,000 proposition to anyone who would be willing to purchase that project and make the renovations, allowing themselves some "entrepreneurial profit" or "entrepreneurial equity" for the risk they took and the effort they expended. No one takes on that "extra" risk or extra effort to end up with a home that is only worth the money that was spent. If that were the case, they would just purchase a turnkey home that requires no effort, nor risk, for habitation. It's classic risk/reward theory. When the "reward" isn't sufficient, the "risk" must be reduced. If neither is sufficient, they just don't do it...

If you have the funds to make those repairs, you should do it. If the insurance company is involved, "hidden repairs" are typically accounted for as they're discovered, thereby leaving you "whole". So there should be no "hidden" costs for her, and it's really the best path forward for her to be left in a "whole" position with all the equity proceeds she is entitled to.

It's a PITA, and perhaps a longer process, but it's the best financial decision, FWIW...

 

[Hedon James]

Is that because the homes have been rebuilt/repaired up to code?

I imagine that is a big factor. But there are some underlying fundamental supply & demand issues at play also. Natural disasters such as this simultaneously decrease housing stock, and increase need for housing. It's a double whammy of decrease in supply at the same time as an increase in demand.

Prices go up...rents go up...they have to. The only real question is "for how wide of an area" and "for how long"?

 

[Devildog]

I imagine that is a big factor. But there are some underlying fundamental supply & demand issues at play also. Natural disasters such as this simultaneously decrease housing stock, and increase need for housing. It's a double whammy of decrease in supply at the same time as an increase in demand.

Prices go up...rents go up...they have to. The only real question is "for how wide of an area" and "for how long"?

I understand now. Thanks for the response.