Risk of poor foundation

Introduction

Foundation problems are receiving increasing attention. According to the Rli (Council for the Evironment and Infrastructure), there are around 425,000 homes in the Netherlands with expected moderate or very serious foundation damage.

But what is the risk of foundation damage for an individual home?

Risks in the future

In general, the following applies:

Risk=Chance×Damage

This means that both the probability of a certain type of foundation damage and the associated costs must be known to calculate the risk.
However, the damage will only become apparent sometime in the future. This means that depreciation, or the devaluation of money, must be considered. After all, a euro in the future is worth less than a euro today.
The depreciation of money can be calculated using the Net Present Value Method. This method uses a discount rate, which indicates how much the required money could have yielded if it had been used differently. For example, in an investment account.

An example

Suppose a house is purchased for €450,000, with a 30-year mortgage. And the house has three risks of foundation damage that are not reflected in the price:

• Minor problems
  On average, once every two years, €2,000 in costs for:

• • Small cracks in stucco or paint
  • Hairline cracks in walls or ceilings
• Medium problems
  Average cost of €10,000 once every 4 years for:

• • Wide cracks in masonry
  • Sagging floors (warping)
  • Warping of window frames and doors
  • Problems with pipes or drains because of shifting
• Major problems
  On average once every 25 years € 40,000 in costs for:

• • Large cracks in load-bearing walls
  • Instability of floors and supporting structures

The annual risk of minor problems is €1,000 (= 50% x €2,000). The annual risk of medium-sized problems is €2,500 (= 25% x €10,000) and the annual risk of major problems is €1,600 (= 4% x €40,000).

If the depreciation of money were not taken into account, the risk for the next 30 years would be €153,000. €30,000 for minor problems, €75,000 for medium-sized problems, and €48,000 for major problems.
Taking into account a discount rate of 3.5%, the annual risks are as follows: