Decoding Knob and Tube Wiring: How It Impacts Your Home's Value

If you own or are looking to purchase an older home, there might be lurking in your home something that could affect its value – knob and tube wiring. Due to the age of many homes in Westmoreland County, I still see plenty of homes with some functioning knob and tube wiring. This old-school electrical setup was once a popular way to install electricity in a home. But now, it's like the outdated ancestor of today's electrical systems, and it comes with some problems.

What Is Knob and Tube Wiring?

Back in the late 1800s to the early 1900s, knob and tube wiring was the go-to for electrifying homes. It used ceramic knobs and tubes to keep wires in place. Fast forward to today, and it's not holding up so well.

Example of Knob and Tube Wiring

The Hidden Dangers

The materials used in knob and tube wiring, like rubber or cloth insulation, have probably seen better days. That means a higher risk of fires. Plus, there's no grounding conductor, which makes the chance of getting a shock higher and incompatible with three prong plugs. Insurance companies see these homes as risky, making it harder and more expensive to get coverage.

How It Affects Your Home's Value

Now, let's get to the point – how does knob and tube wiring impact your home's value?

Safety Worries

People worry about safety when they hear about knob and tube wiring. The fear of fires or electrical problems can make buyers think twice, lowering your home's value due to the smaller buyer pool. This can also have a negative impact on the insurability of the home due to the safety concerns. Many insurance companies will not cover a home with known functioning knob and tube wiring due to the known safety concerns.

Cost To Upgrade

Upgrading from knob and tube to a modern electrical system is a big job and can be costly. Buyers might consider this cost when deciding on a home, potentially lowering its value.

Appraisers Take Notice

When appraisers are on site to look at the property, they're likely to consider the knob and tube wiring in the overall quality and condition rating of the home. Homes that are not updated from systems installed almost 100 years ago have a lower quality and condition rating which, when compared to a home that is updated with newer systems, have a lower value.

If there are safety concerns when it is inaccurately spliced into a more traditional wiring system (I’ve seen this many times), frayed insulation on the wires, or being wired to newer 3 prong outlets, an appraiser might call these out to be repaired as a part of the loan process.

What Can You Do?

If you find yourself dealing with knob and tube wiring, it's not the end of the world. Get a qualified professional to check it out and fix any problems. Upgrading your electrical system can make your home safer and more attractive to buyers.

Will A House With K&T Wiring Qualify For A Mortgage?

The underwriting guidelines for all the major mortgage agencies (Fannie Mae, Freddie Mac, FHA, VA, and USDA) all allow for knob-and-tube wiring as long as the system is deemed to be safe, functional, and typical for the area. Just understand that while many loans will allow for this type of wiring, the house still might not qualify to be insured or there might be safety concerns that need to be repaired in order to qualify.

 In the world of home values, knob and tube wiring is like an old family secret – it can affect things more than you realize. Knowing the risks and doing something about them can make your home safer and keep its value strong. So, whether you're a homeowner or looking to buy, understanding this hidden issue is key to making smart decisions about your home.

Does an Appraisal Have an Expiration Date?

Appraisals do not expire. Every appraisal report is required to have an effective date which reflects the date the value opinion relates to. This date is important because it is the date that becomes the benchmark reflecting the research and analysis of the market trends that impacted the development of value. If at any time after that effective date the market trends change, then the value result could be impacted proportionately.

It is important to note that while there is technically no expiration date, lenders may have their own designated time period for which an appraisal is good for. Most accept an appraisal for 90 days, however, in a rapidly changing market, this time period often can be reduced to 30 days.

Dollars and Sense: The Significance of Knowing Your Home's Worth

You would have to be living under a rock or in an area that is completely off grid to not be somewhat aware that real estate prices have been fluctuating and increasing significantly in many areas over the past couple of years. If you have not purchased or refinanced recently, your homes value might have changed from where you thought it was just 12 -18 months ago. Knowing the value of your home can be important for many reasons of which, here are a few:

Financial Planning

The value of your home is a significant component of your overall net worth. Your home is likely one of your most significant assets. Knowing its value allows you to calculate your net worth accurately. Understanding its value helps you make informed decisions about your financial planning, such as determining your assets, calculating your equity, or evaluating your borrowing capacity.

Selling or Renting

If you're considering selling or renting out your property, knowing its value is crucial. It allows you to set a competitive price that aligns with the market, ensuring you don't undervalue or overprice your home.

Refinancing or Home Equity Loans

When refinancing your mortgage or applying for a home equity loan, the value of your home plays a vital role in determining the amount you can borrow. Lenders assess the loan-to-value ratio, which compares the loan amount to the home's appraised value, to determine eligibility and interest rates.

Property Taxes

The value of your home often influences property tax assessments. Local tax authorities use property values to calculate the amount of tax you owe. Knowing your home's value helps you ensure that you're being taxed fairly and can plan for potential increases.

Insurance Coverage

Understanding the value of your home is essential for obtaining the appropriate insurance coverage. If your home is underinsured, you may not receive sufficient compensation in the event of damage or loss. Conversely, overinsuring your home means paying more in premiums than necessary.

Investment Decisions

If you're considering real estate as an investment, knowing the value of your home can help you assess its potential return on investment, evaluate rental income potential, or make informed decisions about buying additional properties.

It is important to note that home values can fluctuate over time due to various factors such as market conditions, location, renovations, or changes in the neighborhood. Therefore, regularly monitoring and assessing your home's value is important for staying informed. If you would like to check out more information regarding the importance of knowing your homes value, check out the following articles:

https://www.homes.com/blog/2017/03/benefits-of-knowing-your-homes-value-whether-you-are-staying-or-selling/

https://www.homelight.com/blog/check-house-value/

Health Risks in Older Homes

When purchasing an older home, whether you intend to renovate with the plan to live in it or “flip it”, there are some risks you should familiarize yourself with before you begin.

Lead- Lead is often found in the paint, plumbing and the settled dust of an older home. Specifically, homes built prior to 1978 all carry the risk of lead based paint. If you want more information I wrote a blog article on the risks associated with this: https://www.tncresappraisals.com/blog/2022/10/14/lead-based-paint-cant-be-that-bad-or-can-it The best way to deal with lead issues is to consult with a certified lead professional before renovating.

Asbestos- Prior to 1980, asbestos was used in insulation, flooring, roof sheathing and even on textured ceilings. The EPA issued a ban on most products containing asbestos in 1989. When the asbestos fibers are damaged or disturbed, the become airborne which is when it poses the greatest hazard as you breathe these fibers into your lungs. This exposure can show up years later in the form of lung cancer and mesothelioma. When you suspect a material contains asbestos, never sand, scrape or drill holes through it. It is best to use an asbestos abatement professional to determine if something contains asbestos and for any type of repair or removal.

Mold- This can be one of the most insidious of the problems as it is a living organism that, when not treated thoroughly, can reoccur continuously. It also can hide and not appear as an issue until it is an overwhelming problem. It is most likely to occur in areas where there is plumbing or water infiltration like a roof leak or poorly sealed window frame. Those with pre-existing health issues such as allergies or lung problems can be overly sensitive to mold spores. In areas where there is more than 100 square feet of affected area, it is strongly recommended that you use a professional to remediate this issue.

While all three of these health hazards can be scary to think about, each of them are treatable with the right kind of professional. Know the risk and evaluate their impact within your decision process.

Why Does the Appraiser Need the Sales Contract?

When it comes to appraising a property, appraisers must take into account all agreements of sale. According to Standards Rule 1-5 in the Uniform Standards of Professional Appraisal Practice (USPAP), we are required to analyze any contracts for sale. That's why it's important for the appraiser to receive a copy of the sales contract.

 By viewing the contract, the appraiser may be able to identify irregularities and comment on them. For example, if the contract includes provisions for concessions, non-real property items included in the sale, or other unusual conditions, the appraiser may need to comment on these provisions in the appraisal report to explain why there is a difference between the indicated market value of the subject property and the contract price.

 The appraiser is likely familiar with the local real estate contract forms, customary terms, and conditions of real estate transactions in the area. This familiarity enables the appraiser to better understand the specifics of the contract and identify any unusual terms that may need to be addressed in the appraisal report.

In summary, providing a copy of the sales contract to the appraiser is essential to ensure an accurate appraisal. Appraisers are required to analyze all agreements of sale. Understanding the specific provisions of the sales contract is critical to producing an appraisal report that accurately reflects the property's value. By providing the appraiser with the sales contract, homebuyers can help ensure that the appraisal report is reliable and based on accurate information.

Who are reverse mortgages for?

As the Baby Boomer’s retire, an increase of advertisements offering “reverse mortgages” are hitting the airwaves, leaving homeowners (and their children) asking, “Is this a good idea for us?” Due to the ramifications of reverse mortgages, parents should never make these decisions alone without consulting the family who will have to finish the process upon their passing. Today we’ll break down what a reverse mortgage is, and who it might benefit.

“What Is a Reverse Mortgage?
In a word, a reverse mortgage is a loan.”

— Investopedia

A “reverse mortgage” s a financial agreement between the bank and the borrower in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. It is in essence a mortgage but instead of receiving the full equity at one time and then paying the bank back over time, you receive the equity in small quantities over time, and pay the bank back at the end - and its that last part where homeowners need to know the dangers of a reverse mortgage.

A reverse mortgage may be a good idea for you if:

You are at least 62 years old

A homeowner must be at least 62 years old to qualify for a reverse mortgage.

You have enough money/energy to maintain your home throughout the remainder of yur natural life

As the homeowner, you will be expected to keep the home in good order over the course of the reverse mortgage. If you fail to keep the home and property up to local codes and the lenders standards, the lender will have the right to foreclose on the property and remove you from the home.

If you can’t afford to have someone else maintain your home, this means that you’ll need to do it yourself until the borrowers date of death.

You have enough money to pay the taxes on your home without the extra money.

Again, as the homeowner, the lender will expect you to pay the taxes associated with the property. If you do not, the lender again retains the right to foreclose on the property and remove you from the home.

You don’t have any heirs.

At the end of the term of the loan, the lender looks to the estate to fulfill the mortgage. Typically this means that the home is sold and the assets used to pay the debt. In the case of jumbo reverse mortgages, the estate may be liable for any shortfall in the debt.

You plan on being healthy and never leave the home until your date of death

Many reverse mortgages have a clause that allows the bank to foreclose if the homeowner is no longer residing at the home for a span of time - regardless of the reason - such as illness.

Sadly, we’ve seen more reverse mortgage foreclosures than we wish, and the story is always tragic. The family is left holding difficult decisions at the same time as the death or extended illness of a loved one. Be careful, there are many ways for a reverse mortgage to end poorly, and only one way for them to suceed - with the help of the whole family.

For more information:

https://www.wtae.com/article/investigation-finds-reverse-mortgages-can-be-risky/30029369

https://www.consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgage-en-224/

https://www.usatoday.com/in-depth/news/investigations/2019/12/18/reverse-mortgages-leave-families-battling-property-after-death/2597369001/