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MBA (7/14/2003) Murray, Michael
Mold continues to infest the commercial and residential real estate industry, but methods to detect mold are on the rise. Costs for detection products, however, could range from less than $20 to more than $2,000. And even if these products detect a home without mold, insurance carriers might still not find that the proof to be suitable.

"If it's an acquisition, buyers are having those mold studies done," said Steve Shumake, vice president at L.J. Melody & Co., Houston, Texas. "Lenders are not necessarily requiring them unless the property condition report [PCR] indicates visible signs of mold. At that point, it's a trigger to order a third-party mold study." 

The Mold Report testing tools from American Home Laboratories, Inc, have mold detection kits ranging from $25 to $400 for consumers. Meanwhile, a third-party certified mold inspector could cost anywhere from $2,000 to $3,500 for an inspection report.

One commercial real estate underwriter mentioned an application for a 100,000 square-foot building in which a borrower reported finding mold. The structural report could cost around $3,500, but a mold search could add on another $1,000 to the borrower bringing the total to $4,500 that the borrower would need to pay until he or she can receive the loan proceeds.

"They have mold throughout the building so they'll have to remediate the mold," the underwriter said. "To have it done right, they need to have chemical suits on to do it. It's expensive."

Although lenders want to remediate the mold, there is no ongoing plan to keep the mold away--yet. But Shumake said that even though mold detection tools used by property owners do not make any difference in underwriting at this time, they could be a factor in the future.

"If we keep having all these mold claims and all this litigation, it could be a factor," Shumake said. "But right now, lenders are not really focused on that."

Industry analysts say that mortgage lenders are primarily concerned with structural damage mold causes to multifamily housing or a single-family home, its potential health hazards and the insurance associated with mold.

Some environmentalists might compare mold to radon as a toxic hazard in residences, but most industry analysts say that mold might be the bigger issue because it is more expensive to mitigate than radon.

However, few lenders are asking for thorough checks of mold and all lenders require radon tests, said Wally Reid, vice president at L.J. Melody.

"They're making people check for radon and have been for awhile now," Reid said. "[Mold] is new."

But a number of lawsuits have led insurance companies to raise premiums in homeowners insurance and, in some areas, homeowners insurance has become unavailable. Multifamily lenders have been concerned about mold for the past couple of years, and servicers continue to grapple with insurance issues from mold.

Officials at the Centers for Disease Control and Prevention (CDC) said that reliable sampling for mold can be expensive, and "standards for judging what is and what is not an acceptable or tolerable quantity of mold have not been established."

CDC officials pointed out that a physical inspection of the contaminated area is necessary to determine results within each unique structure. Also, inspectors need to consider the buildings characteristics and the factors that led to the present condition.

CDC officials said that if property owners pay for environmental sampling on mold, they should ask the consultants who do the work about the criteria for interpreting the test results before the work starts. The consultants should tell a property owner in advance their procedures and the possible recommendations they will make based on the sampling results.

Mold is mostly found in summer cottages, as well as single-family homes and multifamily properties in coastal states, such as California, Texas and Florida. But mold has emerged in less water-laden locales, including a high-end condominium in Washington, D.C., and in Minnesota, during a flood from July of last year.

In Minnesota, the Federal Emergency Management Agency (FEMA), the Minnesota Division of Emergency Management, and the Minnesota Department of Health wanted homeowners to be aware of potential health risks of mold, and pointed out specific characteristics of the fungus.
Unlike radon, homeowners are able to see mold and smell an earthy or musty odor, FEMA said in a report released last year. Some homeowners could find mold under water-damaged surfaces, or behind walls, but discoloration and cracking walls are other signs of mold, FEMA said.

FEMA also reported that when wood becomes soaked it could warp when it dries and cause walls to crack or become weaker. Mold can become a problem in the house if there is enough moisture to allow mold to thrive and multiply. Dampness from flooding can get in walls, carpets, and wood. This moisture provides an excellent environment for mold to multiply. Mold is especially attracted to paper products such as wallboard used in many homes.

In addition to mold detection units, homeowners, tenants and landlords could reduce mold growth by reducing the humidity, lowering the temperature of the home or unit, and ventilating bath and cooking areas, FEMA officials said. Also, owners should avoid installing carpet in kitchens and bath.