A sinkhole forms when sediment and rock collapse underground, creating a cavern. Eventually, the sediment underneath can no longer support the land near the surface, resulting in a depression in the earth. The depression forms a crater directly above the cavern and nearby areas, causing a sinkhole. Sinkholes left untreated with enough sediment and soil to reinforce the underlying cavern will continue to worsen. The width and depth of sinkholes vary considerably, as do their effects on property values.
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The proximity of a sinkhole to a property is the main cause of damage to a property. By themselves, sinkholes do not devalue property; the resulting structural damage is what will cause a home to lose value. The closer the sinkhole is to a property, the higher the likelihood of damage, the further away, the less likelihood of property damage. In some cases, sinkholes cause homes to collapse, meaning a total loss to the owner. In other cases, sinkholes far enough away from a property are treated and filled over time, without any resulting damage or loss of value to a home.
Property repaired because of sinkhole damage, with an accompanying certified engineering report certifying treatment of the sinkhole, will not suffer a loss in value. However, property that has undergone only cosmetic repair without the sinkhole treatment will suffer a loss of value. How much of a loss is determinable only by a licensed property appraiser, who will account for the approximate damage done to the home and reduce the value based on the current market conditions and required structural repairs. This could range from a few thousand dollars to tens of thousands of dollars; the amount varies based on the scope of the damage.
In areas prone to sinkholes, residents receive sinkhole disclosures from real estate professionals, including advice for obtaining additional homeowners insurance coverage specific to this property malady. If a property owner selects sinkhole coverage, the insurance company covers his repairs and sinkhole treatment. If he opts out of coverage, however, the incurred costs come out of his pocket.
Even when insurance companies extend coverage to properties prone to sinkholes; they have the option to deny coverage to a property owner purchasing a home within a one-mile radius of a sinkhole. Before buying a home, inspect the neighborhood and surrounding areas for signs of sinkholes, and inquire about the current presence of sinkholes with your real estate professional. Always get a homeowner’s insurance quote and an additional sink hole coverage quote in areas prone to sinkholes before making an offer to purchase, in order to factor this additional cost into your monthly payment.