Posts Tagged ‘Six Months’

If you have ever had a UK mortgage you will know that often, but not always, you get a copy of a Valuation Report. This report is NOT a survey and never has been. So, what is the status of the Valuation and can you rely upon it?

Let us start with the definition of Value? An assessment of what the general marketplace would bring forward and offer for the purchase of a home. It assumes certain things – that reasonable marketing has already been completed and reflects the state of the market prior to valuation.

Unless the basis needs to be different for a specific stated reason then the general valuation methodology is as follows:-

Analysis the market for similar homes – similar in terms of location, size, construction, accommodation, materials and design plus condition. Rippling out from an epicentre (the location of the home) you then look for nearest match actual sales or the asking prices of homes not sold but are on the market and available to buy. Furthermore, an analysis must be made of  selling prices of similar homes that have sold over the last six months or so. When all this has been done then the data is used to assess the subject home making allowances, both negative and positive, for each material difference.

This comparison method is an imprecise science. Indeed I would describe residential valuations as an art and not a science. When politics, Bank protectionism and potential rogue factors such as Valuer age and brought into the equation it is not at all surprising that the very large majority of UK residents remain confused over what is a survey, what is a valuation and what do I need if I am buying.

Some of the below listed factors can be both helpful or troublesome in any individual case as often we need to be protected from our ignorance. However, I for one believe that the Valuation Industry has fallen well short of educating the public on what a simple Valuation is.

So where does confusion set in?

(1) It is not a survey. No home Valuation can be termed a survey. A Survey is a detailed assessment of the risks affecting, and the condition of a home based upon a reasonably comprehensive inspection of all the component parts of the structure.

(2) No bid from a special purchaser can be reflected as this would be a special case and not general market value.

(3) It assumes that both seller and potential buyer act knowledgeably and prudently. However, this is not my own experience of over 35 years of acting for sellers and buyers.

(4) Special rules can apply. For example – if the home to be valued is brand new it is nowadays determined that the loan worth of a new home is based upon its value as if the home was second-hand (not new). It is the same principal as buying a car – in theory once purchased the car is not new and is instantly worth less.

(5) Many Developers (selling brand new homes) provide incentives for you to buy their products. Discounted this month! Cash-Back deals! Carpets and Curtains included this month! No mortgage payments for a year! No Fees purchase! You know the sort of thing. The Valuer must have knowledge of such matters and ignore the time limited benefit of such incentives. This means a possible down-valuation of the property is about to land on your doorstep. This is standard UK Home Valuation policy and procedure.

(6) Another theoretical problem is that the Loan Valuer is valuing for loan purposes: he is not valuing for YOU. This may seem rather a strange thing to say but if I bought a home and asked a Valuer his opinion of “value to me” he would ask me why I am buying. I might say that the home is next door to my parents house and it has special value to me. In this example I might be prepared to pay a premium, something extra to market value. Such a definition would be termed “special value to me” and is not market value.

(7) Market trend analysis problems. A Loan Valuation is prepared by a Valuer acting for a Loan Company assessing the worth of the property for loan purposes. If the Loan Company knows, fact or perception it does not matter, that values are about to fall, then Employer instructions to that Valuer would be to be cautious: perhaps even to down-value most cases in order to ensure customers do not go into negative-equity and perhaps be at risk of defaulting on the mortgage. By this method the Bank is protecting itself from its customers and such business methods are a potent resource it is armoury. These market and company pressures can get out of balance. The worldwide credit-crunch showed us the power of perception and protectionism by Banks and Finance Houses. The customer always came second to Bank profits.

(8) In theory you could get differing opinions of value, based on the same assessment methods (see later comments), depending on whether your Valuer is a Mortgage Company Valuer or your own employed Valuer (as well as whether your home is brand new or second-hand).

Indeed such Loan Company policies can, collectively, actually influence market value. Lets assume you own a non-standard home form with very few similar houses like it. The demand for your home may be quite restricted if loan finance is in short supply. All it would take is for the Loan Companies to come together and agree to not lend above, say 50 per cent of valuation, or if your Flat is over the lower five storeys in a block, if your home is constructed in a certain way, etc….

These types of thing have happened in the past. Financial Regulators have failed to stem the tide of Bank Power and must accept some element of blame for the consequence – Credit Crunch.

Summary? What do we need to remember in this less-than-transparent world?

• A Valuation is not a survey.
• Some Valuations will assume things different to your own circumstances.
• Loan Company Valuation policies may adversely affect the Valuation by hamstringing the Valuer.
• Never assume that because a Bank will lend to you that the property must be in good condition.
• Where a valuation variation/discretion may be exercised nearly every time that discretion will not be in your favour (it will be in favour of the Banks).

One final thought . A scenario has been highlighted to me by various hits upon my own website (worried buyers or home owners) and by my experiences with preparing Expert Witness reports for Court work. The average age of a residential Valuer is very high in some countries. I do not know the statistic but would guess that it is around the 58 to 60 years old level in England. This means that many residential Valuers are nearing retirement age. As such, it is alleged, they do not want to adversely affect their pension or employment status-quo. This, allegedly translates to over-cautious valuations, often very significantly below market sustainable values therefore limiting the loan available to you and damaging the demand for that type of property.

Just to complicate matters further the UK Valuation industry is about to let loose a new form of Valuer – somebody who analyses market data and says that the value could be between X and Y. Plus, some loan valuations are to be produced by automated means, a further extension of market data analysis rather than an assessment based upon a human actually inspecting a property. These matters will further confuse us as we come out of the current UK General Election and Economic downturn but I will not analyse these matters here (another day, another article and another Valuation!).

SUBSIDENCE – YOUR WORST NIGHTMARE?

Cracks appearing? Floors are “on a slope”? Doors and windows sticking?

Thinking of contacting your Insurers?

Building Insurers Consultant says “it’s nothing bad” but you think…..?…..

Need to know if you are adequately insured?

This subject is one of the most problematic and stressful a home owner could face. PROinspect believe Insurers do not always play fair with home owners and often complete remedial works that do not go far enough to restore the investment value of the customers home – stigma attaches to the home and its value can often suffer, especially in bad markets such as we are experiencing now and perhaps for a few years to come.

PROinspect would quickly state that if you have concerns about your home you do need to get a Professional in if only for initial advice and a tactics meeting before Insurers are notified. Do not place blind trust in an Insurance Company. This recommendation flies in the face of much conventional wisdom but, sadly, it is our experience that some Insurers don’t always play fair and therefore a little pre-knowledge and coaching from us can be worth its weight in gold, in some scenarios. At present, as we come out of summer 2010 we are experiencing a lot of Conservatory movement problems and this seems to be a whole new area of problems in itself.

Subsidence is not always defined in Insurance Policies and so the below comments have been brought together to begin to de-mystify this whole subject.

Before we move on let me outline a real 2010 experience of Insurers —- your home is in one of the worst subsidence districts around (pure highly shrinkable clay and near the top of a hillside with trees all around) – you buy the home on the strength of a Structural Engineers Report “sold” with the house (report 6 months old) that outline past movement that was now stable and no works were needed. As you extend the home 12 months later cracks appear and the same Engineer reports active subsidence. You put an Insurance claim in but the Engineer Loss Adjuster says the movement has ceased and no works are needed. You do not believe the Loss Adjuster and get an further, independent Engineer in who says the movement is active. The damage is monitored over the next 18 months and found to be passive and non-progressive. In the meantime it has been a dry year and within 6 months the cracking starts again. Now, irrespective of all the Engineer opinion, this home is unsaleable. Patently intermittent subsidence is happening because of trees and clay. Underpinning works are needed: the home owner is under a duty to declare the scenario to potential buyers: nobody but a cash purchaser would be able to buy this and they would only do this at a heavily discounted price. This home is now blighted because Insurers cannot see the bigger picture.

REMEMBER – we have the experience and knowledge that could be the difference you are looking for before you commit to a Purchase or an Insurance Claim. If you are considering homes “on our geographic patch in central, southern England, then use the CONTACT FORM now to contact me to “pick my brains”. I may just be able to help you avoid an expensive mistake.

Enjoy……. (NB: PROinspect do not hold with all opinions expressed below – proceed at your own risk) ……….

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What is the difference between “settlement” and “subsidence”?

Settlement usually occurs in new or relatively new buildings. They are very heavy and cause the ground to compact, but this normally stops after a short while. Additionally, most buildings are constructed in a variety of materials, all of which need to settle down and have different shrinkage rates. It is not unusual for a builder’s contract to require them to come back in six months to make good those settlement cracks that have appeared, for instance, between the walls and ceilings. In older buildings of a more flexible construction, cracks can appear in the summer that close up in the winter when the materials absorb moisture. These are known as “summer cracks” and are usually non-serious.

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Taken from The Times On-Line on September 18, 2009

Ten ways to prevent subsidence at home

Don’t panic: follow our ten steps to avoid the cracks

Paula Hawkins

Dealing with cracks

1 A rise in the number of subsidence claims in the South East might not sound positive, but it could indicate an improvement in the property market. As Neil Curling, senior structural claims manager at Halifax Home Insurance, notes: “People don’t tend to notice the minor signs of subsidence until a surveyor looks at a property on behalf of a potential buyer.” Subsidence does not necessarily stop a sale.

Choose your trees

2 Tailor your trees to the size of your garden. “Most subsidence claims are due to shrinking clay soils and this is exaggerated by the moisture demands of tall trees,” says Curling. Willow trees are the worst; plant them at least 40m from your home. Poplars, oaks, horse chestnuts and planes should be planted 20 to 30m away. If you have a small garden, opt for a yew tree or a magnolia.

Renovate carefully

3 The trend towards improving your property rather than moving has put more houses at risk of subsidence. “Many DIY conservatories are being built without sufficiently deep foundations,” says Jill Maclean, technical manager at Lloyds TSB Insurance. The insurer found that 84 per cent of people working on their homes do not have blueprints drawn up, while just a third follow building regulations.

Take care of your drains

4 “Have drains tested regularly for root infestations and leaks,” says Maclean. Nylon sleeves can be used to repair drains without digging up and replacing all the pipes.

Look out for cracks

5 “Check the outside of your property regularly, particularly at this time of year,” Maclean says. Not all cracks in walls indicate subsidence; there are many reasons why they might appear.

“The typical cracks associated with subsidence come from the corners of windows and doors and will go right the way through the wall,” says Curling. “You might also notice that windows don’t open and close easily, and that doors stick and jam.”

Don’t skimp on searches

6 If you are thinking of moving, make sure that the proper searches are carried out. About 15 per cent of subsidence claims are due to previous mining activity beneath a building. Poor drainage is another culprit, so it may be worth having a survey carried out of the drainage.

Age is not all

7 Do not assume that just because a property is old it is more likely to suffer. “Older properties have shallower foundations, which does make them more vulnerable to subsidence, but they are generally built of bricks in soft lime mortar which makes them more flexible,” Curling explains.

Act fast

8 Speed is of the essence. If you notice a problem, act immediately. “The first thing you should do is to notify your insurance company,” Curling says. “Subsidence is quite a narrow sphere of surveyors’ expertise, and insurers will have specialists in this field.

Don’t panic

9 Many subsidence problems can be tackled without serious disruption. “The removal of trees is often the best solution, although this may not be possible if you live in a conservation area or if there is a tree preservation order,” says Curling. Cutting back trees may also help — although this must be done carefully and professionally, since pruning trees may also stimulate growth. “Where the ground has been very badly affected, there may be a need to underpin the house,” adds Curling. “But while this used to be massively disruptive and expensive, it is now much faster and cheaper.”

Causes

A. The most common causes of subsidence are as follows:

1. Settlement of old mine workings, often at great depth, resulting in damage to structures on the surface. These may often be a long way from the cause of the damage. Access shafts are notoriously difficult to identify as mine operators rarely kept good records of these points.

2. Damage to subsoils caused by water flowing through them. This may be from naturally occurring ground water or leaking drains and water mains. When a drain begins to leak it can soften or wash away the body of a soil and create weakness. This can result in the weight of any nearby structures causing the soil to crush, allowing the building to subside.

3. Long term consolidation of fill.

4. Decomposition and degradation of soils that contain a large organic content. Peat soils are made up of vegetable matter laid down by historic forests. When these materials are below the water table in the ground they remain relatively stable for hundreds of years. If, for any reason, the water table should become lower then the soils will be prone to drying-out or biodegrading – either of which will result in a reduction in its volume. This will cause any buildings supported by the soils to settle and crack.

5. Instability of uneven ground. When soils rest at an angle to the horizontal they can sometimes become unstable and begin to slip. This is typical of coastal cliffs and most people are aware of the type of dramatic collapses that appear on the news from time to time. In a lesser way this can happen on naturally occurring slopes and in areas where a man-made excavation has created large differences in ground levels. This may be a large excavation for a tall building or open earthworks for a major road scheme. This type of movement is both difficult and expensive to deal with.

6. Shrinkage of clay soils. Clay is a natural soil created in historic rivers by the deposition of tiny rock particles. In Great Britain and Northern Europe clays occur with an amount of water dispersed within their matrix.. Being highly impermeable to the passage of water, clays will resist the tendency to dry out and will normally maintain a consistent moisture content over many decades. If a clay dries out it can shrink. Upon rewetting it expands. This results in seasonal shrinkage and swelling which can cause cracking of nearby buildings. Tree roots spread out in search of water. Clay soils are a ready source of water that a tree can remove by suction. When trees grow in shrinkable clay soils they locally dry out the soils and can often cause subsidence if they affect the soils beneath the footings. Alternatively, if a well established tree should die then the ground in which its roots are dispersed will no longer be subject to the long term drying-out effect and as a result will begin to take up moisture from surrounding soils and from the atmosphere. This in turn will result in swelling of the soil and this is known as heave. In many respects, heave is capable of producing greater damage to a building than its counterpart, subsidence.

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Taken from www.abi.org.uk/Information/40471.doc

Subsidence –

Dealing With The Problem

It is the sight every homeowner dreads – cracks appearing in the walls of their home. But don’t fear the worst – while there has been an increase in subsidence claims in recent years, most buildings suffer minor cracking at some time so it doesn΄t mean that there is a subsidence problem.

This information sheet explains:

* What subsidence is and how it can affect a property;

* What signs may indicate there could be a problem with the property;

* What can be done to reduce the risk of subsidence; and

* How household insurers will investigate potential problems and deal with any claim.

What is subsidence?

Subsidence is the downward movement of the ground supporting the building. Particular problems arise when the movement varies from one part of the building to another.

It can be caused by:

Certain soils – Clay soils are particularly vulnerable to subsidence since they shrink and swell depending on their moisture content.

Vegetation – Trees and shrubs take moisture from soils causing them to shrink.  This is especially so during long periods of dry weather as roots extend in search of water.

Leaking Drains – Damaged drains can soften or wash away the ground beneath the foundations.

Less commonly, problems may occur where properties are built over, or close to, mine workings.

Other types of ground movement, which can result in cracking and structural damage, are:

Heave – the upward movement of the ground supporting the building.

Landslip – movement of ground down a slope.

What should you look out for?

The first obvious sign of subsidence is the appearance of cracks. However, not all cracks indicate that there is a problem. Most buildings experience cracking at some time and there is no need to be alarmed by every crack that appears.

Cracks are not uncommon in new properties and newly built extensions. They are likely to be the result of the building settling under its own weight. These usually are nothing to worry about, nor are fine cracks that often appear in newly plastered walls as they dry out. Buildings shrink and swell naturally due to changes in temperature and humidity, which can lead to minor cracks where walls and ceilings meet. These too should not normally be anything to worry about.

What should be looked out for are small, usually diagonal, cracks which suddenly appear in plaster work inside and outside bricks at weak points, such as around doors and windows, especially after long periods of dry weather. These may, but not necessarily, indicate movement in the building´s foundations. The cracks will normally be thicker than a 10p coin, and usually be wider at the top. Doors and windows may also “stick” due to the distortion of the building.

Can you do anything to reduce the risk?

Yes. Taking a few simple precautions can help reduce the risk of structural damage.

Trees and shrubs planted too close to a property are a common cause of problems. The attached table indicates the suitable planting distances of various trees from houses, garages or outbuildings. You should also consider the proximity of trees to underground drains and buildings including any belonging to neighbours.

Ensure that trees and shrubs are pruned regularly. Expert advice should be sought from an arborist to make sure they are pruned correctly. Regular general maintenance checks should be carried out around a property. Checks should be made for blocked or leaking drains; dirt and leaves cleared from gutters; and pipes checked to make sure there are no splits.

Cover provided by household insurance

A buildings insurance policy will normally cover damage caused to a property by subsidence, heave or landslip. Damage to walls, gates, fences, patios, drives and swimming pools will not usually be covered unless a home is damaged at the same time and by the same cause. The policy should set out what is and what is not covered. However, if any clarification is required, an agent or the insurer will be happy to help.

Policyholders will normally have to pay the first part of any claim – the excess. This will be detailed in your policy.

If the damage is so serious that a home cannot be lived in, most buildings, and even contents, policies will pay for the cost of comparable alternative accommodation, while the damage is being investigated and the repair work is carried out. This will be subject to a limit which is usually a percentage of the sum insured.

When should you contact your buildings insurer and what will they do?

As soon as you believe there may be a problem, you should contact your buildings insurer. A policy will normally require the insurer to be advised of any potential claim as soon as possible and, in any event, it is sensible because the sooner the problem is investigated, the quicker everything can be put right the less inconvenience will be caused.

It will first be necessary to identify the cause of the damage and what needs to be done to stop it. Once any movement has been stabilised the necessary repairs can be carried out.

Insurers really do understand and appreciate policyholders΄ concerns and will do all they can to minimise the worry and inconvenience. Insurers will also keep policyholders informed of developments at every stage.

Handling a claim

Once they are aware of the damage, the insurer may arrange for a structural engineer and other specialists to carry out detailed investigations to decide the best course of action. These experts will report back to the insurer with their recommendations and then supervise any work that needs to be done.

Alternatively, the insurer may advise the policyholder to contact a structural engineer (it may be able to provide a list of recommended firms) so that the problem can be investigated. Once again, the insurer should then know the cause of the problem and how best to deal with it.

Investigations may include digging holes to find out the type of soil, the depth and condition of the foundation and whether roots are causing a problem – this is quite normal.

It may also be necessary to monitor the width of cracks or other signs of movements over a period of time, usually for at least twelve months, so that the extent of the problem can be accurately established. Once all the information has been collected and analysed, then a plan of action can be drawn up to cure the problem.

Today, very few cases of subsidence are likely to require under-pinning – the strengthening or deepening of building foundations. Generally, further damage can be prevented by the professional removal or pruning of trees, repairing drains, or by localised repairs to brickwork. Then internal decorations will be renewed to complete the job.

If a property has suffered coal mining subsidence damage, the Coal Authority or mine owner mining in the area will be responsible for dealing with any claim. If a problem arises contact should be made with the Coal Authority (01623 427162) – as they will be able to provide information regarding the procedure involved. At the same time, the buildings insurer should also be informed.

What happens if you change your insurer?

If you change your buildings insurer and then discover a subsidence related problem, any claim may be dealt with under the Association of British Insurers΄ Domestic Subsidence Claim Handling Agreement. The agreement sets out which insurers will be responsible for handling any claim. The majority of household insurers subscribe to it. If a claim is made within the first eight weeks of the changeover, the previous insurer will deal with it. Claims between 8 weeks and 1 year will be handled by the new insurer with the cost of settlement shared equally between the two insurers.

Any claims made a year after the changeover means that the new insurer alone will deal with the claim.

Things to remember

If cracks suddenly appear, it does not necessarily mean there is a major problem.

Careful attention should be paid to the type, size and distance of any trees and shrubs from a property

While buildings insurance covers damage caused by subsidence, heave or landslip, there will normally be an excess which the policyholder will have to pay – you should check your policy to see what excess you have.

You should contact the buildings insurer as soon as you believe there is a problem. They are there to give help and guidance.

If you change insurer and a problem arises, there is an ABI Agreement that sets out which insurer will deal with the claim.

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Recommended additional reading:-

Essential reading from the FINANCIAL OMBUDSMAN Service about DISPUTES involving SUBSIDENCE = http://www.financial-ombudsman.org.uk/publications/ombudsman-news/59/59-insurance.htm

Excellent free SUBSIDENCE PDF brochure from the R.I.C.S. = http://www.rics.org/site/scripts/download_info.aspx?downloadID=177&fileID=181

Trouble with new Insurance on your purchase? Check Endsleigh IQ via Woodstock Insurance Brokers for those problem cases = http://www.endsleigh.co.uk/home/Pages/subsidence-property-insurance.aspx

Technical article via Tulane University (Prof. Stephen A. Nelson) that includes explanations of multiple causes, detailed diagrams within a “Natural Disasters” series = http://www.tulane.edu/~sanelson/geol204/subsidence.htm

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