C O A L I T I O N Corner Coalition Corner: Business training tools for HR staff, real estate agents and other service professionals in the relocation and real estate industries Synthetic Stucco: What it Means to the Relocation Industry Excerpts from an analysis by Richard H. Mansfield, Worldwide ERC ® /Coalition General Counsel Washington, DC © 2005, Employee Relocation Council/Worldwide ERC ® Coalition

C O A L I T I O N Corner Program objectives This program supplements an editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Define synthetic stucco –Highlight for relocation professionals some of the key issues, risks and benefits associated with properties built with synthetic stucco

C O A L I T I O N Corner Synthetic stucco defined Synthetic stucco is: A multi-layered exterior building substance Generally applied over a foam substrate Almost identical in its exterior appearance to conventional stucco Most often found on mid- and upper-cost residences in South and West in the U.S. Also known as EIFS – Exterior Insulation and Finish Systems

C O A L I T I O N Corner Additional Information Early EIFS products were “barrier types,” dependent on installation, inspection, maintenance While most properties were properly built and maintained, the high cost of repair to those properties where failure occurs makes its presence a risk management issue In some cases, particularly where installation and/or maintenance is substandard, undetected water intrusion and subsequent rot, mold and even termites has required substantial rebuilding Some jurisdictions outlawed its use via changes in building codes Some insurance companies may have decided to stop insuring houses with EIFS (although extent of or exact nature of refusals is unclear)

C O A L I T I O N Corner Impact for relocation professionals Relocation professionals considering buying, selling or holding in inventory a house with EIFS should be aware that the failure of some of these types of systems has spawned litigation against: manufacturers installers and builders Two of the more comprehensive cases involve class action suits filed in North Carolina and Tennessee, representing homeowners nationwide – both currently in process of settlement

C O A L I T I O N Corner Some of the risks Without specialized inspection, there may be significant unknown or undisclosed damage to structure (especially on first-generation EIFS) Failure is generally not visible without testing Inspections must be done by trained inspectors, and are not part of regular home inspection – general home inspectors universally exempt liability for EIFS damage EIFS failures tend to be costly to remediate

C O A L I T I O N Corner Some of the risks, continued Without inspection, appraisals assume no hidden damage from EIFS failure, exposing employer to significant cost and/or liability where such damage is discovered at or after sale to ultimate purchaser In some areas, EIFS homes may carry stigma, making sales difficult and/or lowering prices Relocation management companies often insist on indemnification from employer for EIFS houses, due to potentially high liabilities Many higher level transferees may own EIFS houses (some purchased through previous relocation contractors)

C O A L I T I O N Corner Some of the benefits Second-generation EIFS products, properly installed, have alleviated much of the risk of leakage and damage (in use for properties constructed in the past five or so years) Allowing EIFS properties into home sale programs may reduce transferee reluctance to move Where properly tested, EIFS places no stigma on a sound house, and allows the market to determine any risk

C O A L I T I O N Corner Additional items to consider Comes down to a complicated disclosure issue — –any defect can only be determined by specialized inspection –mistakes may leave an employer with ownership of, or liability for, very expensive remediation Research indicates that a large number of companies currently exclude houses clad in EIFS from home sale programs — policies or programs often instead: –specify direct reimbursement of selling costs to transferring employee, with or without gross-up –accept EIFS houses only as “special properties,” subject to additional inspections, disclosures and fees, or –consider EIFS houses on a case-by-case basis, generally after an inspection

C O A L I T I O N Corner Additional items to consider, continued There is at least one company which offers an inspection and warranty product for EIFS houses Policy decisions require an analysis of: –costs –employer’s risk tolerance and HR culture –number of previous and expected EIFS properties Whatever program is adopted (excluding direct reimbursement), insurability of house must be determined

C O A L I T I O N Corner For more information… This edition of Coalition Corner represents excerpts from a more detailed analysis of the synthetic stucco issue Copies of the full text are available by calling The Worldwide ERC ® Coalition at , or ing