Water is crucial to life… but in some situations, it can be your worst enemy! Water leaks can be an owner’s worst nightmare. These situations are super stressful, can be extremely expensive and… there are a lot of decisions to make in a short period of time. Understanding what to expect should this occur to your property is key in making the best of the situation. The following is a step-by-step overview of the process.
STEP ONE: Stop the Leak
When a leak occurs, this is brought to the attention of the property manager by having the resident reach out stating that they are noticing water intrusion. From here, a plumber will be dispatched to address the issue. Sometimes, the leak is easily identifiable such as a leaking angle stop from a sink or washer and dryer. However, sometimes the leak may not be as easily identifiable and a plumber’s service such as a Leak Detection Test may be needed to identify the source of the leak. The key in this step is to fix the leak as quickly as possible to prevent additional water intrusion to the property and start the drying-out process. A key question at this step is, what is the year built of the property? Licensed plumbers are not able to cut into drywall if the property was built in 1987 or before as it may contain lead. If the property was built prior to 1987 it will require further testing. If a property was built in 1988 or after, then you may skip Step Two and go onto Step Three.
STEP TWO: Testing Required?
If a property was built prior to 1987 it must be tested for lead and asbestos. To accomplish this, an environmental company will be hired to come in and take samples of the drywall for testing. If this tests positive, then the Abatement process must be followed. If the property test negative for both lead and asbestos, then you may proceed to Step Three.
STEP THREE: Insurance Claim?
Given that leaks can lead to extensive damage, the best line of defense is your Landlord Insurance policy as this should cover the water loss. Here’s an overview of what to consider when filing a claim:
DEDUCTIBLE
What’s Your Deductible: While this can vary from carrier to carrier as well as what you originally chose when setting up the policy, we will use $1000 as that’s a very common dollar limit for a lot of policies. In theory, if the total cost is up to $1000 then it wouldn’t make sense to file a claim, you would just pay out of pocket. However, as the total cost of the work keeps increasing then the decision must be made at what dollar amount an owner would opt to file a claim. While this will vary on an owner’s preference, we usually recommend that if the total amount of work will be more than 200% to 300% of the deductible then it may be worth filing a claim. The question then becomes, how do you know what the cost of the work will be?
Cost of Work: The cost of the work is a combination of Step 4 and Step 5. A vendor that specializes in this type of work will be able to provide an answer.
VENDOR SELECTION
Our Vendor: There are vendors that specialize only in the work for Step 4 and some contractors that can do the work of Step 5. However, for rental properties you want a vendor that can not only do both but that can also provide the information in the format that the insurance carrier will need to be able to approve the work. The vendor of choice for us is ServPro which is a national franchise. In addition, ServPro is a Preferred Vendor for most insurance carriers which means that they will negotiate directly with the insurance carrier and will accept the final price the insurance carrier approves as final payment. This is critical as they will not bill an owner for the difference in payment. To help expedite the process, we will dispatch ServPro to go to the property and provide us an assessment of the situation for both Step 4 and Step 5. This helps provide clarity if it will be in an owner’s best interest to either file an insurance claim or not.
Insurance Carrier’s Vendor: An insurance carrier will have their own network of vendors that they will recommend but you are not required to go with them. The challenge here is twofold… the first is that we don’t have a pre-existing relationship with the vendor and second is that if we wait for the insurance carrier this is usually too late as we would have needed to have a vendor that would already be working on assessing the damage.
FILING A CLAIM
Filing the Claim: If an owner decides to file a claim, they will need to give the insurance company a call and file the claim as an insurance carrier does not allow us, the property management company, to file the claim on their behalf. An owner can list us as the point of contact so that after the claim has been filed, we can oversee the entire process with no further owner required involvement with the insurance carrier.
Assigning Adjusters: Once the claim has been filed, the insurance carrier will assign the claim to an adjuster. Most of the time, if the claim is small, it will be assigned to an Office Adjuster who will review the information as provided by ServPro and decide to see if it’s a covered loss. If the claim is large enough, the Office Adjuster will have a Field Adjuster go to the property to take pictures and make their own assessments of the situation.
Adjusters & ServPro: It is important to note that if ServPro has been hired they will communicate directly with the adjusters to provide them all the information needed for the insurance carrier to provide approval.
Approved Estimate & Funds: Once the work has been approved, the insurance carrier will mail payment to the insured to get the work completed. If the property has a mortgage on it, the insurance carrier will make the check payable both to the owners and the mortgage company. This is critical as you will need to reach out to your mortgage company and find out what process they need in order to get the check endorsed by them as to not delay the process. In addition, insurance carriers typically do not cover the cost of the plumbing repairs.
STEP FOUR: Mitigation (Drying Out)
Once the plumber has gone out to stop the leak and assuming that Step 2 is not needed, ServPro will be out to assess the situation and start the drying process. Here’s some items to consider in this step:
Equipment: To completely dry the affected area and prevent mold, fans and dehumidifiers will need to be set up and possibly ran consistently for multiple days up until everything is dry. It is crucial to note that a concern that is brought up by residents every time is that their energy bill will be higher as these machines use a lot of electricity. Best practices are to provide a credit for the overage to their average electricity bill once they get their higher electric bill.
Residents: Depending on the damaged area, residents may be able to stay in the property or they may need to temporarily move out to make sure that the work is able to be completed. If the property is deemed to be habitable but a component of the home is not usable, it is usual and customary to prorate the rent on a proportional basis based on the square footage of the home that is not usable. An example would be if 20% of the home has been affected and not usable then to prorate the rent by 20% for the duration of the project.
Rents: If an adjustment to the rent has been made based on the fact that a portion of the property is not usable and an insurance claim has been filed, then an owner can add to the insurance claim to recover lost rents. Your landlord insurance policy has a section called Loss of Use which covers for situations like this where you are not collecting rents for all or a portion of the property due to the loss of use. To obtain reimbursement for this all the insurance adjuster will need is a copy of the resident’s ledger.
STEP FIVE: Reconstruction
Finally… putting every back together! For this step we will get the schedule from ServPro as to how long it will take to put everything back together. Open communication from ServPro and us (the management company) to the resident is key in making sure all parties are working together to get this completed as quickly as possible. The insurance carrier will approve to replace the previous material that the property had. An example would be if the kitchen had tile countertops, then they would pay for tiled countertops. This is a checkpoint where an owner gets to decide if they want to maintain that or make an upgrade to better material such as quartz countertops. During this step we will assist an owner in providing samples for the selection to be made. If an owner lives locally, they may be able to drop by to a showroom which has the material selection that can be chosen. If an owner lives out of the area, then we will work to provide and mail samples if possible or provides with photos so that an owner can make the best decision possible.
CONCLUSION
Having a property manager that understands the process and a reliable vendor like ServPro that can coordinate both the Mitigation & Reconstruction all while running point directly with the insurance carrier will ensure that an owner can get their residents back into a habitable property as quickly as possible.
