My first column of 2013 comprised a list of top advice – invaluable stuff I’ve discovered about doing business, thanks to the hard lessons of others.
Included was: “I know it’s not up there on your list of most fun things to do, but go to your filing cabinet, find your short-term insurance policy and your homeowner’s insurance policy and read them from start to finish, especially the exclusions. You may find that despite dutifully paying your premiums every month, you won’t be covered in the event of a claim, because of a term in your contract… do not even consider buying a property without first having it professionally inspected.
“The service is relatively inexpensive – about R3000 for an average home – but could spare you financial ruin at worst, or at least give you the means to negotiate a lower purchase price.”
I’ll add to that now by saying: do not make the mistake of assuming that because your bank’s insurance arm or an insurance company sent an “inspector” to your house before insuring it, all is structurally okay with your home.
That assessor or inspector merely determines whether or not there is enough value in the property to secure the loan, and they come up with the replacement cost of the building for insurance purposes.
Here’s a story that, I suspect, many homeowners will relate to.
Mary MacDonald and her husband bought a home in Glenwood, Durban, in 1998 and lived in it until moving to Singapore a few years ago, when they rented it out.
In December last year, their tenants informed them that heavy storms in the area had caused substantial damage to the property. A stormwater gully had collapsed at the side of the house, exposing a broken stormwater pipe. And the bathroom off the main bedroom – an addition by the previous owners – had started to shift off the main structure.
MacDonald then lodged a claim with Standard Bank Insurance Company. After some delay, builders and a plumber visited the property, but neither MacDonald nor a Durban relative, who was handling the matter for her, were able to get any feedback from the insurer.
When MacDonald visited Durban last month, an insurance inspector went to the house. But she remained in the dark as to the outcome, which is when she turned to Consumer Watch for help.
“What I have managed to gather, informally, is that there was inadequate stormwater control on the property and that there have been a series of bad building practices. But except for extending a patio roof, we have not made any alterations to the house.
“The en suite bedroom and the stormwater drainage system was in place when we purchased the property 15 years ago, after Standard Bank Insurance Company’s assessors had inspected the property and approved our bond application.
“We were none the wiser about the structural problems, until this damage and subsequent investigations at the property took place.”
I took up the case with Standard Bank.
Responding, bank spokesman Kershia Singh began by apologising for “the breakdown in customer service, which Mrs MacDonald experienced, that resulted in a delay in her receiving feedback on her claim”.
She has since been sent the insurer’s findings, which, as she suspected, are that the claim has been repudiated.
“The insurance policy in this case, and in line with similar policies in the insurance industry, does not include cover for defects in design, materials and construction,” Singh said.
“Specifically excluded are damages pre-existing the inception of the policy. This is clearly set out in the policy document that customers receive.”
Insurers require that the insured property was constructed in accordance with National Building Regulations and South African National Standards regulations, Singh said.
Singh said the role of the assessor, who visited the home before the bond and, if applicable, homeowner’s insurance were approved, was also set out in those home loan documents.
“Assessors do not advise on any matters relating to structural integrity, conformity with building plans, the national building regulations, nor the land and improvements for suitability to underlying geological conditions or flooding.”
And then she revealed something I had not been aware of before.
In the revised Code of Banking Practice, applicable from January 1, last year, potential property buyers are now explicitly advised to “take independent qualified advice on the structural or other condition of the property before concluding such a purchase”, Singh said.
So I looked it up.
This is what the code states under mortgage loans: “Issues of home quality are the responsibility of the seller, or builder or developer, and yourself as buyer. You must satisfy yourself to the best of your ability that you are buying a sound property and, if necessary, obtain assurance as to the structural quality of the property, compliance with local authority requirements and replacement costs of the buildings and improvements from the proper experts.”
Well, all that advice came too late for the MacDonalds, who now have to spend a small fortune – possibly as much as R200000 when all the quotes are in – to fix the various structural problems of their home.
And no doubt they are not alone.
Given the huge risks involved, wouldn’t it be a good idea for the insurers to make such a professional, structural assessment a condition of the insurance?
I asked this question of the ombudsman for short-term insurance, Dennis Jooste.
“In a perfect world, this would be the position everybody should aspire to, as the consumer would then know the risks in purchasing the property and the insurance company would have all the relevant facts at its disposal to assess the risk.”
But the commercial reality of buying a property meant this wasn’t possible in every case, Jooste said.
So in case your estate agent and financing bank don’t say a word about the need for a professional structural assessment, don’t put in an offer without one.