Selling a House with Water Damage: How to Keep Your Sinking Deal Afloat

H2O, the precious nectar that hydrates our bodies, flows through rapids and rivers, and supports life on earth, is your home’s public enemy number 1.

37% of homeowners have suffered losses due to water damage while 98% of basements deal with water issues at some point. And according to Murphy’s Law, you’re most likely to have a pipe burst or flash flood at exactly the time you decide, Hey, now would be a good time to sell the house!

“I had a case where an inspector in the crawlspace discovered that the water line in the back of the refrigerator had been leaking—possibly for months,” recalls real estate agent Christy Friesen of one of her seller clients’ water damage crises. “Some of the beams and the floorboards had to be redone.”

Graph of home losses ranked by claims from water damage.
Source: (iii.org)

Selling a house with water damage is a daunting proposition but you can prevent a worst-case scenario with the proper protections in place and expert guidance to walk you through it. We’ll help you avoid a crisis like having to field massive costs out of pocket or getting served with a lawsuit, with all you need to know about:

  • The most common causes of water damage to a property.
  • Water damage insurance and how to make sure your house is covered.
  • Your options to make the necessary repairs or reduce the price of your water-damaged home.
  • Real estate disclosure procedures for known water damage in a property.
Rusty pipe dripping with water damage.
Source: (Aaron/ Pexels)

What are the most common sources of water damage in a house?

Water damage can spring from a variety of avenues and is one of the major issues that have home inspectors on the lookout. Expect to get dinged on your home inspection report if you have safety issues involving water damage, such as the growth of black mold. Many home inspections also turn up old pipes, which can lead to leakage water damage.

Here are a few plumbing issues you should note before your inspector does:

  • Rusty pipes
  • Old water heaters
  • Leaky toilets
  • Water sewer issues
  • Backflow and cross-connection issues

Some of the most frequently seen sources of water damage include:

Flat roofs:

According to Florida- and North Carolina-based Secure Restoration, a five-star water remediation company that has been in operation for more than a decade, a flat roof’s slight gradient can cause a host of problems when undermined by debris buildup, the weight of which flattens the roof and causes water to pool on top rather than running off as designed.

Roofs can also experience ice dams in winter weather when puddles become encrusted with ice that traps the water. Either way, you’ve got possible water damage and mold on your hands in the form of roof cracks and ceiling leaks.

Prevention tactic:
To prevent water damage with a flat roof, fix low spots that cause water to collect and not drain. Also, open or unclog existing drains, and at the same time consider repitching the roof—but be sure this is done by a licensed contractor.

Leaking pipes:

Hard to detect and tricky to diagnose, this is seriously bad news if you’re looking to sell your home. Many things can lead to leaking pipes, including the wrong pH balance of your water, which can lead to dissolving copper. Pipes can also freeze or rust.

Prevention tactic:
Keep an eye on your taps to diagnose this—low water pressure or discolored water are both signs of trouble.

Stains and water marks on your ceiling also point to leaking pipes. Bubbling, peeling paint on your walls, stains, and watermarks on your ceiling, or cracks and soggy spots on the floor are signs of excessive moisture and leaks from your plumbing. If you see signs of any of the above, get in touch with a plumber.

Dirty gutters:

Debris blockage can cause water to overflow and flow down the side of your house, which is not anything you want as it can lead to damaged or discolored siding, destroyed landscaping, flooded basements, or shifted foundations.

Prevention tactic:
Check your paint for dirty watermarks—that’s a hint right there. Make sure to locate the problem area and take any steps necessary to stop further damage. This could mean turning off the supply of water to your home or soaking up standing water. Then call a professional.

Insurance paperwork used when selling a house with water damage.
Source: (Photo by Sarah Pflug from Burst)

Water damage and insurance: A billion-dollar business

Fortunately for Friesen’s client who dealt with the surprise water damage finding in the middle of her home sale, she had sufficient insurance at the ready. “I said, listen, you have to call your insurance—that’s going to be a pretty expensive fix,” Friesen said. “Some of the beams and the floorboards had to be redone. The key is having proper insurance coverage.”

Water damage claims are where many homeowners insurance policies get put to use. In fact, insurance companies pay out $2.5 billion each year to water damage losses. 14,000 homeowners deal with water damage on a daily, while nearly all basements experience water damage at one point or another. The average water-damage claim is just shy of $7,000. Water damage and freezing accounted for nearly 30% of homeowners insurance losses in 2016.

Chart showing homeowners insurance losses from water damage.
Source: (iii.org)

The types of water damage covered through insurance typically include sudden or accidental discharge, overflow, flood, and sewer or water backup. Gradual damage may also be included, but it must not have been a problem that was deliberately neglected.

Allstate Insurance Company notes that two types of coverage within a standard homeowners policy may be applicable in this situation: dwelling coverage and personal property coverage.

The specific amount depends on your individual policy, but comprehensive homeowners insurance comparison engine ValuePenguin estimates that most cover up to $5,000 for mold remediation, though the range is between $1,000 and $10,000.

ClaimsMate, a nationally trusted provider of claims insurance from beginning to end, offers the following claim filing tips for homeowners dealing with water damage:

  • Notify your insurance company immediately
  • Secure the property to prevent further damage: remove standing water and dry affected area
  • Take photographs and create an inventory of damaged items
  • Find temporary housing if necessary

What are the effects of water damage? Should you consider remediation?

Bart Tipton, a top-selling Bakersfield, California real estate agent who’s facilitated 771 transactions to date, notes that water damage is one of the difficult issues to crop up during a home sale:

“They can take down the sheetrock (as much as) three feet in the walls, clear out all the insulation,” said Tipton. “It’s expensive. … Most of the time the insurance will pay for it, but it’s extremely inconvenient.”

The Water Page, a comprehensive site that covers water-related education, development, breaking news, and more, lists several effects of water damage on a home. These include:

  • Damaging wood furniture, household appliances, plumbing equipment, electronic equipment, and upholstery.
  • Increases the risk of mold growth.
  • Health issues stemming from mold and contamination.

According to the experts, remediation is not an if but a when —and the sooner the better.

“I’ve had people have leaks underneath a bathtub or something like that, that they found during the inspection, and they have a mold test done just to make sure there isn’t any mold,” Tipton said. “And if it is, which I have had in the past, have a mold remediation company come out and do it. It does get expensive (4 to 7 thousand) but you really don’t have too much of a choice.”

According to HomeAdvisor, a digital marketplace providing real estate resources since 1998, the national average for water damage is $2,587. The typical range is listed at $1,080 to $4,098, with $450 at the low end and $8,000 at the high end. Whichever way you slice it, it’s going to be costly.

Are you required to disclose a property’s history of water damage to buyers?

When in doubt, disclose. Such is the consensus of experts who say that not only is full disclosure ethical, it’s smart. Disclosures, a major part of any real estate transaction, document in writing any known issues with a property. While these vary by state, known water-damage instances are one of the routine things you’ll have to disclose.

“That’s definitely one of the big points—any water damage or water intrusion,” Tipton said. “That’s one of the big questions they have to answer on the transfer disclosure statement.” (You can review the disclosure form in your state in this comprehensive list HomeLight compiled.)

Nolo Press legal editor Ilona Bray notes that legal remedies may be pursued against a seller who fails to make pertinent disclosures—including past water damage. Bray writes that there are three parties who may find themselves under the litigious gun:

  •   The seller
  •   The seller’s real estate agent
  •   The buyer’s inspector

Huntsville, Alabama-based real estate attorney Mac Martinson echoed Bray’s sentiment. “The seller could be liable, if they knew of the damage,” he told Avvo Stories, “as this is a health and safety issue and the seller did not correct the problem.”

Wall in house showing signs of water damage.
Source: (Cynthia Farmer/ Shutterstock)

What are the biggest challenges of selling a home with water damage?

Phoenix, Arizona-based Rocky Mountain Restoration, a Better Business Bureau-accredited Restoration Industry member, lists several difficulties when selling a home with water damage:

Price reduction:

Buyers know that it may take some money to restore a property with water damage and will likely knock that amount off the offer.

“Buyers definitely express concern about it,” Tipton noted, though he did not provide a precise figure as to the average amount that water damage will subtract from an offer, as it would depend on the severity of the problem and factors surrounding the circumstance. Restoration Master Finder, a comprehensive website that assists consumers with finding service providers nationwide, advises buyers to subtract the cost of water damage and remediation from purchase offers.

Electrical and health concerns:

Not only is it possible that the damage has affected the home’s electrical system—which can create a security risk—but floods and the resulting mold can pose health problems for inhabitants.

Possibility of future damage:

Once water damage happens, it can happen again if you’re living in a flood zone or the issue isn’t properly fixed. Buyers know this, too. Essentially, buyers are going to proceed with extreme caution once they know water damage is an issue. This cuts your chances of getting the asking price that you want.

That said, there are buyers that will consider a house with water damage; as Tipton notes, by the time he is representing them, the damage has been done and fixed. “They understand that if it’s already fixed, it’s pretty easy (to deal with).” That is, if the damage has been addressed, buyers will hopefully have no further problems stemming from it.

Should you ever sell your water-damaged house to a cash investor “as is”?

Depending on the severity of your water damage situation, you might contemplate the possibility of selling your house “as is” to a cash investor.

This might be an attractive option in a few scenarios: Say, if you’re knee deep in repair negotiations and find yourself in a gridlock with the buyers of your house, or can’t keep any offers on the table after all the proper disclosures are made.

What’s the catch? Well, the cash offer you receive will likely be less than what your house could fetch on the open market should you make the necessary repairs and put your best foot forward on pricing.

However, the direct-buy market is more varied and opportune than ever. Find out what a cash buyer would offer on your water-damaged home today.

Need a No-Fuss Home Sale?

Find out what cash buyers are willing to pay for your home right now.

“If someone is trying to get rid of the home, and it’s a cash investor, as long as they disclose (what needs to be disclosed), that’s pretty much on the buyers,” says Tipton. “The offer is going to come in under value. But you don’t have to worry about appraisals. There is no risk for the sellers if they’ve disclosed everything and are truthful up front.”

A business meeting for the purpose of disclosing water damage in a house.
Source: (Rawpixel/ Unsplash)

What do top agents suggest when selling a home with water damage?

Friesen reiterated her belief in the power of proper insurance.

“Insurance is very important—a big, big deal. I don’t want a seven-thousand-buck, out-of-pocket surprise—ever.”

For his part, Tipton noted that if an inspection turns up water damage, it must be investigated immediately. “If it’s there, you have to address it one way or another,” he said. “Once you know there is a leak, it kind of gets to the point where it is what it is.”

Investorwize, a seasoned Bayside, N.Y.-based real estate investment network that purchases properties nationwide, has a few words of wisdom when it comes to selling a home with water damage, and here are the highlights:

First and foremost, do not hide current water damage or a history of water damage.

Some sellers have tried to conceal the damage with would-be solutions such as drywall and spray foam insulation, leading to legal battles. Don’t let this happen to you! If you know it, disclose it.

Research mold remediation options.

You can either take this on yourself or let the buyer handle it, but keep in mind that if you opt for the latter, you will almost certainly get a lower purchase offer. Also, if you choose to offer a repair credit, you’ll likely end up bringing more money to the table than the true cost to remedy the problem.

Repair areas with damage.

Start by calling your insurance company and remove all items damaged by the incident such as mattresses, rugs, furniture, etc. While wood floors can typically be salvaged, drywall is usually another matter entirely. Plaster ceilings typically survive mold better than sheet-stone; it’s advisable to replace the latter. 

Get any and all remediation measures in writing.

Your sales contract should clearly state the steps you’ve taken to mitigate water damage in the home. Save any and all receipts and paperwork related to contract work, remediation services, or warranties as you’ll need to present them during the transaction as proof of completed work.

Selling a house with water damage: Don’t let an H2O crisis sink the deal

If you’re trying to sell a home with water damage on the market, you’re likely going to need expert assistance and advice. That’s where an experienced, qualified real estate agent comes in. Agents come with a list of contacts that include all types of specialists you’re going to need to handle this, from inspectors to mold remediation firms and beyond. And remember: no question is too small to ask!

Find a top agent in your area