Hurricane Sandy destroyed thousands of homes in the Northeast, reportedly inflicting as much as $50 billion worth of damage and sparking a slew of relief efforts aimed at providing housing aid for storm-affected victims.
But along with putting many homeowners' lives on hold, Hurricane Sandy also brought housing sales in hard-hit regions to a screeching halt, highlighting how a disaster can delay or altogether derail real estate activity in affected markets.
Sandy's impact on real estate activity "went unbelievably far," said George S. Wonica, a Realtor based in the New York City borough of Staten Island, one of the hardest-hit regions. (Pictured above is one home damaged by Sandy in the Staten Island neighborhood of New Dorp.)
By outright destroying some homes for sale, the storm sank a number of deals in a flash. Since storm damage to a home can significantly drive down its value, both lenders and buyers have reason to want to put the brakes on a deal following a disaster.
"Suddenly, the loan-to-value ratio of the house will not meet the lender's requirements or the federal requirements" if the home is damaged, said Barry Goodman, general counsel to the New Jersey Association of Realtors. In other words, any harm to the home's value could render the original loan amount to buy the home unacceptably large to a lender or the loan's government backer.
As a result, lenders serving regions that were declared major disaster areas, such as swaths of New York, Connecticut and New Jersey, have mandated that homes under contract be re-inspected for damage. Even sales activity in areas that mostly escaped the worst of Sandy's wrath have been affected, Wonica said.
"Now [home inspectors] have to go back [to those areas] for the banks, and make sure there was no damage, even though they're not near the beach," Wonica said.
Ed Pfaff, a resident of the Staten Island neighborhood of Westerleigh, is one homeowner who hasn't been able to finalize the sale of his home because of the re-inspection directive from lenders. Pfaff, a client of Wonica's, had intended to close the sale of his home in early November. But now the 62-year-old, who plans to move to Florida to retire after the deal closes, expects a delay of at least another month as he awaits the results of a re-inspection of his home.
For the lender financing the purchase of Pfaff's home, asking for a re-inspection made perfect sense. Pfaff said that his home, much to his surprise, emerged unscathed from the storm. But fallen trees smashed into two homes on his block, and "it looks like Godzilla went through Tokyo and knocked down all the telephone poles," he said.
Recently, an inspector went through Pfaff's home snapping photos, but didn't offer an estimate of when the inspection's results would be ready, Pfaff said. "He told me he was very busy," Pfaff said.
Pfaff said that he's confident that the inspection didn't uncover anything that could put the deal in jeopardy.
But if an inspection does find damage to a home, the seller almost always has to pay for necessary repairs in order for the deal to close. Otherwise, the buyer, lender and seller must negotiate a new deal.
"The overwhelming number of times, the seller is responsible for ensuring that the property is in the same condition as when it went into contract," Goodman said. He added that in most deals, a buyer -- and not just the seller -- can push for a last-minute re-inspection.
In addition to fixing any structural damage, the owner of a damaged home under contract must also repair any damaged big-ticket items like gas and electric fixtures, large appliances and the home's heating system, which are all sometimes vulnerable to flooding.
Fortunately for a seller whose home is under contract, damage to neighboring properties usually doesn't affect a pending deal. Even if a toppled tree demolishes the home across the street, or a storm surge swamps the one next door, it shouldn't matter, Goodman said.
That's because in the event of a disaster a lender or buyer usually only asks for a re-inspection, not a reappraisal, Goodman said. Unlike an appraisal, a home inspection only evaluates the home itself, and does not take into consideration those around it.
Goodman noted that both buyer and lender do have the right to ask for a re-appraisal, however, but that following events like Sandy, re-inspections are much more common.
But if your home was up for sale when a disaster struck, and you didn't have any offers on the table yet, then you're in a dicier situation.
As the foreclosure crisis has made abundantly clear, neighborhood home values suffer from any proximity to derelict properties. So if a storm wrecks the roof of a neighboring home, another home in the community could have its value negatively impacted, at least temporarily. For that reason, Goodman said, a homeowner should wait until a neighborhood recovers before attempting to sell a home.
"The reality is that they can put the house on the market, but they'll get a diminished value before the neighborhood is cleaned up," he said.
And it goes without saying, New Jersey Realtor Val Nunnenkamp said, that a seller whose home itself was damaged should mend the property before marketing it.
"We had to temporarily withdraw them from the market to get water out of basements and fallen trees off property," Nunnenkamp said of some of his clients' listings, which are spread across southern New Jersey.
A severe storm such as Sandy may also taint a property's value by revealing its vulnerability to flooding, Goodman said. "Suddenly this area that had not previously flooded now may be declared a flood zone."
Such a designation could chip away at the value of a property or make it less appealing to buyers, who could be required to pay flood insurance by a mortgage provider. However, Goodman said, it's unlikely that a buyer could pull out of a pending deal due to the revelation that a home is vulnerable to flooding -- unless the seller failed to disclose that the home was in an area that had already been designated a flood zone.
Ariel Dagan, a Realtor with Keller Williams Realty in New York City, who serves sellers in Manhattan, has a client who may have to lower the listing price of her lower Manhattan apartment in recognition of the home's vulnerability to storm surge. But a decision to tweak the price of the home would only come after his client pays for thousands in repairs to the property.
Worth millions and just recently renovated, the apartment had its basement flooded with 8 feet of water during Sandy -- right before the owner was about to list it, Dagan said. Tens of thousands of dollars in furniture must be replaced, he said, and the basement has to be gutted.
Those repairs will take a bite out of his client's wallet, he added, since flood insurance is "not something that's really preached in New York City."
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