Coalition Corner: Business training tools for HR staff, real estate agents and other service professionals in the relocation and real estate industries Synthetic Stucco: What it Means to the Relocation Industry Excerpts from an analysis by Richard H. Mansfield, Worldwide ERC®/Coalition General Counsel Washington, DC © 2005, Employee Relocation Council/Worldwide ERC® Coalition COALITION Corner
Program objectives • This program supplements an editorial feature in Worldwide ERC®’s Mobility magazine • This segment will: – Define synthetic stucco – Highlight for relocation professionals some of the key issues, risks and benefits associated with properties built with synthetic stucco COALITION Corner
Synthetic stucco defined Synthetic stucco is: • A multi-layered exterior building substance • Generally applied over a foam substrate • Almost identical in its exterior appearance to conventional stucco • Most often found on mid- and upper-cost residences in South and West in the U. S. • Also known as EIFS – Exterior Insulation and Finish Systems COALITION Corner
Additional Information • Early EIFS products were “barrier types, ” dependent on installation, inspection, maintenance • While most properties were properly built and maintained, the high cost of repair to those properties where failure occurs makes its presence a risk management issue • In some cases, particularly where installation and/or maintenance is substandard, undetected water intrusion and subsequent rot, mold and even termites has required substantial rebuilding • Some jurisdictions outlawed its use via changes in building codes • Some insurance companies may have decided to stop insuring houses with EIFS (although extent of or exact nature of refusals is unclear) COALITION Corner
Impact for relocation professionals • Relocation professionals considering buying, selling or holding in inventory a house with EIFS should be aware that the failure of some of these types of systems has spawned litigation against: • manufacturers • installers and • builders • Two of the more comprehensive cases involve class action suits filed in North Carolina and Tennessee, representing homeowners nationwide – both currently in process of settlement COALITION Corner
Some of the risks • Without specialized inspection, there may be significant unknown or undisclosed damage to structure (especially on first-generation EIFS) • Failure is generally not visible without testing • Inspections must be done by trained inspectors, and are not part of regular home inspection – general home inspectors universally exempt liability for EIFS damage • EIFS failures tend to be costly to remediate COALITION Corner
Some of the risks, continued • Without inspection, appraisals assume no hidden damage from EIFS failure, exposing employer to significant cost and/or liability where such damage is discovered at or after sale to ultimate purchaser • In some areas, EIFS homes may carry stigma, making sales difficult and/or lowering prices • Relocation management companies often insist on indemnification from employer for EIFS houses, due to potentially high liabilities • Many higher level transferees may own EIFS houses (some purchased through previous relocation contractors) COALITION Corner
Some of the benefits • Second-generation EIFS products, properly installed, have alleviated much of the risk of leakage and damage (in use for properties constructed in the past five or so years) • Allowing EIFS properties into home sale programs may reduce transferee reluctance to move • Where properly tested, EIFS places no stigma on a sound house, and allows the market to determine any risk COALITION Corner
Additional items to consider • Comes down to a complicated disclosure issue — – any defect can only be determined by specialized inspection – mistakes may leave an employer with ownership of, or liability for, very expensive remediation • Research indicates that a large number of companies currently exclude houses clad in EIFS from home sale programs — policies or programs often instead: – specify direct reimbursement of selling costs to transferring employee, with or without gross-up – accept EIFS houses only as “special properties, ” subject to additional inspections, disclosures and fees, or – consider EIFS houses on a case-by-case basis, generally after an inspection COALITION Corner
Additional items to consider, continued • There is at least one company which offers an inspection and warranty product for EIFS houses • Policy decisions require an analysis of: – costs – employer’s risk tolerance and HR culture – number of previous and expected EIFS properties • Whatever program is adopted (excluding direct reimbursement), insurability of house must be determined COALITION Corner
For more information… • This edition of Coalition Corner represents excerpts from a more detailed analysis of the synthetic stucco issue • Copies of the full text are available by calling The Worldwide ERC® Coalition at 202 862 4229, or e-mailing coalition@erc. org COALITION Corner
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