Friday, September 13, 2019

“How Big Business Is Hedging Against the Apocalypse - New York Times” plus 1 more

“How Big Business Is Hedging Against the Apocalypse - New York Times” plus 1 more


How Big Business Is Hedging Against the Apocalypse - New York Times

Posted: 11 Apr 2019 12:00 AM PDT

Rex Tillerson stood under a 32-foot pipe organ at the Morton H. Meyerson Symphony Center in Dallas, explaining how the world worked. It was May 2015, in the middle of an oil-price crash, and Exxon Mobil's earnings had fallen 46 percent compared with the same quarter the year before. But Tillerson, then Exxon's chief executive, told his shareholders to be confident in the future. Oil and gas furnished billions of people, including the very poor, with cheap, reliable fuel — a fact not easily negated by a weak fiscal quarter. "Our view reflects the reality," Tillerson said, "that abundant energy enables modern life."

Later that morning, a Capuchin Franciscan friar rose to speak. A so-called faith-based investor, Michael Crosby belonged to a tight circle of religious leaders who bought stock in public companies in the hope of exerting a moral influence on them. While Tillerson, head of one of the largest oil companies in the world and a power broker in international geopolitics, was accustomed to ignoring protesters, Crosby proved more tactical than most. He submitted a motion to appoint a climate-change expert to Exxon's board, which gave him the floor for several minutes. Then he laid into Tillerson for having uttered "not one word or syllable" about climate change. He asked why Saudi Arabia invested in solar panels while Exxon spent nothing. "You're living out of the past," he told Tillerson.

At Exxon's annual meetings — as in most rooms where important business happens — people speak in the subdued patter of corporate jargon, language that camouflages the reality it describes. So in the 2,000-seat auditorium, it would have taken a moment to appreciate the gravity of what Crosby was actually describing, which was not a few numbers on a balance sheet but something closer to the fate of the species. Global energy consumption is rocketing upward every year: The Energy Information Administration expects it to climb another 28 percent within a generation. Hydropower, wind and solar contribute about 22 percent of the total, and their share grows yearly. But the net amount of energy generated by hydrocarbons is growing yearly, too. It's all rising because demand is rising. Global hydrocarbon producers, meanwhile, have so much product in reserve that burning even half of it would leave us with slightly worse than heads-or-tails odds of staying under the two-degree-Celsius threshold that, according to climate models, could bring mass famine, drought, flooding and fires.

[One storied American institution is ready for the coming climate chaos: the Pinkertons.]

From his spot beneath the pipe organ, Tillerson regarded the friar. "Like it or not," he said, the world would depend on fossil fuels "for the next several decades" — well into the middle of the century. This was Tillerson's line whenever people asked him about the future of hydrocarbons: Remind them how dependent they are and paint alternatives as childlike fantasies. Tillerson said the motion for a climate-change expert would be defeated. Turning to renewables, he dismissed them as a sucker's bet. "Quite frankly, Father Crosby," he said, "we choose not to lose money on purpose." The crowd at the Symphony Center showered him with applause.

Three years later, an Irishman named Declan Flanagan, chief executive of the renewables company Lincoln Clean Energy, was addressing his own shareholders in Copenhagen when he delivered a cryptic announcement. Lincoln, he said, was going to build a solar farm in the Permian Basin — the heart of West Texas oil country — with funding put up by a "blue-chip counterparty." Flanagan let this hang for a moment in the room while he breezed through a jargony update on regulatory matters. Finally he returned to the story. "I mentioned the blue-chip counterparty," he reminded his listeners. "That," he said in his strong Irish accent, "is Exxon Mobil."

Between Exxon's meeting in Dallas and Flanagan's announcement in Copenhagen, the oil giant had installed a new chief executive — Tillerson having exited for a brief sojourn in Washington — but had not experienced a change of heart. No decision had been made to execute a bootleg turn away from hydrocarbons. Exxon's executives, like everyone in the energy business, had watched as the cost of renewable power tumbled ever lower in Texas, where a lattice of high-tension power lines carried electricity from the bright, windy plains of the far West and the Panhandle to the thirsty cities below. Far from feeling worried, Exxon saw an opportunity. Fracking is a very electricity-intensive method of extracting hydrocarbons. By using solar energy for just a portion of its operations in Texas, Exxon could save on electricity costs and keep more cash. It could profit by turning renewable power back into the hydrocarbon power it existed to replace.

Exxon's arrangement in Texas reflects, in miniature, our national state of indecision about the best approach to climate change. Depending on whom you ask, climate change doesn't exist, or is an engineering problem, or requires global mobilization, or could be solved by simply nudging the free market into action. Absent a coherent strategy, opportunists can step in and benefit in wily ways from the shifting landscape. Tax-supported renewables in Texas take coal plants offline, but they also support oil extraction. Technology advances, but not the system underneath. Faced with this volatile and chaotic situation, the system does what it does best: It searches out profits in the short term.

Unlike almost every other future event, climate change is 100 percent certain to happen. What we don't know is everything else: where, or how, or when, or what the changes mean for Facebook or Pfizer or notes of Chinese-government debt. Navigating these thickets of complexity is theoretically what Wall Street excels at; the industry prides itself on its ability to price risk for the whole economy, to determine companies' values based on their likelihood of generating earnings. But traders are compensated on their quarterly or yearly performance, not on their distant foresight. It takes confidence to walk into your boss's office talking about sea levels in Mozambique in 2030, when your colleague has a reason to short-sell the Turkish lira this week. Practically no one in the financial system is directly incentivized in the near term to worry about the biggest risk conceivable.

The simplest response is to keep investing in companies that, like Exxon, conduct their business as usual while adapting where they can. Another response is to forget about the immediate term and go long on more sustainable bets. Al Gore, for instance, whiles away his hours running a climate-focused fund called Generation Investment Management. On a slightly higher plane sit the gigantic banks and mutual funds, which continue to invest traditionally but use "climate analytics" to see where their portfolios might contain problems, like public utilities that could be bankrupted by wildfires.

[Read David Leonhardt on the economics of climate change.]

Other strategies display more cleverness. Electric vehicles and green power grids require, for their batteries, valuable minerals and metals. Spot prices for nickel and cobalt fluctuate by double-digit percentages on commodities exchanges, while investors eye shares in lithium mines. Anticipating future food crises, strategists at Merrill Lynch advise clients to snap up vertical farms and "smart hydroponics"; anticipating water shortages, they also recommend investing in Chinese wastewater-recycling businesses.

As the earth becomes hotter, the air becomes less dense. In June 2017 in Phoenix, airlines grounded multiple jets because their wings couldn't achieve lift in the 119-degree heat. Assuming more 119-degree days, aerospace companies like MTU Aero Engines and Rolls-Royce are "lightweighting" some of their machines to adapt. In Australia, an agribusiness conglomerate waits for family farms to fold for lack of rainfall, then considers buying their land at a discount. With drought conditions, the chief executive told The Australian Financial Review last year, "we are seeing more opportunities than would have been there normally." A real estate manager in Dallas told a Bloomberg reporter that he purchased hotels right before Hurricane Harvey to take advantage of the need for short-term housing, and made a 25 to 30 percent return. The Harvard endowment has bought up vineyards in California, acquiring their water rights in the midst of a long drought.

By the middle of the century, the climate of the Southeastern United States will most likely be tropical, no longer ideal for peach trees but perfect for the Aedes aegypti species of disease-bearing mosquito. In response, some investors are going long on firms conducting clinical trials for dengue and Zika vaccines: One asset manager told me he knew of multiple "Zika strategies." Pharmaceutical companies foresee robust demand for antimalarials, products typically confined to poor countries; they can look forward to a market in the rich parts of the globe. In Miami, where the expensive neighborhoods lie low near the water, there may be a wave of "widespread relocations," researchers warn, as the flight from the coast serves to "gentrify higher-elevation communities" like Little Haiti. One study warns that speculators may already be "hedging on South Florida's gradual exodus" to the central and northern parts of the state. In Greenland, mining companies buy previously useless land rights in order to extract the minerals that melting ice will shortly expose. In addition to uranium and molybdenum — a silvery metal used in steel alloys — the miners expect to find rich reserves of oil, which they fully expect to burn.

The Greenland play was best reported by McKenzie Funk, whose 2014 book, "Windfall," profiles the first generation of climate profiteers. Schemers prowl these pages. A London "climate-change fund" invests in Russian farmland, whose value is expected to spike amid "drought-fueled global food crises." Betting on the same thing, a former partner of A.I.G. flies to Sudan to strike a farmland-lease deal with a rebel general. A former C.I.A. analyst buys "billions of gallons of water" in the American Southwest and Australia. An Israeli entrepreneur goes long on desalination plants (some powered by coal, Funk notes).

What is odd about many of these climate plays, which rely on such complex assumptions about the future, is how myopic they seem. They assume that the world will change around a stable, fixed point. American weather will curdle to such a degree that Tennessee will become an incubator for malaria, yet Wall Street banks and patent lawyers will saunter along as usual. Rising oceans will submerge coastal financial centers beneath several feet of saltwater, yet commodities markets will pay top dollar for Greenlandic uranium. Taken individually, these assumptions sound dubious. But as a whole, they mirror what's happening on Wall Street. Each successive year incinerates the temperature figures of the previous one, yet the stock market continues to break records.

An unsettling fact of Wall Street today is that some of the same people who accurately predicted the housing bubble are now describing another bubble, whose collapse will make the financial crisis of 2008 look mild. Perhaps the most famous is Jeremy Grantham, a founder of the Boston-based asset-management firm G.M.O. and a commander of the British Empire. In 2005, Grantham began to write letters to his investors saying that the housing market appeared overleveraged; in 2007, he warned of "the first truly global bubble." His latest prediction overshadows the preceding one. We are, he says, in the midst of a historic period of mispricing. Because the global economy depends on hydrocarbons, practically every asset in the world relates in some way to oil and gas. Grantham believes hydrocarbons will be priced, or regulated, into submission. In light of that belief, not only oil companies' stock but practically everything else on the market looks falsely inflated.

[Read about new legal strategies to make the world's biggest polluters pay for climate change.]

In the last few years, Grantham has committed all but 2 percent of his personal fortune to funding projects — energy storage, pesticides, lightweight cars — that might help save us in the event of two degrees of warming. In June 2018, he gave a keynote address at an investment conference in Chicago. The two speeches before Grantham's were called "Take a Balanced Approach to Sourcing Cash Flows" and "Making Sense of the Multitude of Multifactor ETFs." Grantham called his speech "The Race of Our Lives."

"You could call this presentation the story of carbon dioxide and Homo sapiens," he began. Then he spoke for nearly an hour about glacial runoff, food scarcity and lithium batteries. He explained how a turbine's efficiency increased exponentially with the length of its blades. He said that offshore wind farms in the churning North Sea could soon provide the cheapest power on the planet. He rose to a techno-utopian pitch, speaking about our obligations to our grandchildren, decency over profit. Even as he spoke lucidly about climate change, Grantham represented a tangled and confusing paradox. Perched as he was at the pinnacle of the market, he was developing an acute sense of the market's failure to address the problem that most obsessed him. Yet he continued to help oversee a $70 billion firm, which was the main source of his wealth. If anyone was living inside the tortured contradictions between the market and the climate — between our modern economy and its ultimate external cost — Grantham, I thought, was the person.

When I knocked on the door of his Beacon Hill townhouse at 8:45 in the morning on a Friday, the door swung open, and Grantham appeared on the staircase, 80 and impish, wearing a dark purple sweater over a pink-and-green striped shirt. "Were you waiting long?" he said. I followed him up into a second-story living room where winter light flooded the bay windows, falling on a hand-painted Dutch children's sleigh from the 17th century. Grantham took my coat, then seated me on the couch. Every so often, a heat pipe hissed somewhere behind me.

When Grantham started his climate fund, the Grantham Foundation, in 1997, many asset managers on Wall Street viewed his work as a fringe pursuit. "There was an undercurrent of, 'Oh, this is a load of [expletive],' " he said. During the past two years, however, the cavalcade of hurricanes, droughts, floods and displacements has made it impossible to maintain the same level of denial in the polite corporate circles that ring Wall Street. This did not mean that climate-based investment strategies had become popular. It was the opposite: No one was willing to risk all of his or her "career units," as Grantham called them, on climate.

"The problem of doing it accurately is, of course, massive," he said, referring to betting on climate change. "It's a fast-moving area with even more uncertainty than an uncertain world. It's the cutting edge of uncertainty."

Grantham's fund is going long on lithium and copper, which he believes will form the vascular system of future renewable-powered supergrids. His confidence derives from an odd and specific conviction that "sooner or later, there will be a carbon tax," and much of the market capitalization of the leading oil and gas companies will be erased. "You have a certainty," he said. "It will happen. Or we'll be on our way to a failed civilization."

It took me a moment to process what this meant. Grantham was saying that a bet on a future carbon tax was a sure thing because the absence of a carbon tax meant civilizational catastrophe. If he were right, he could make billions. If he were wrong, it wouldn't matter, because the world would be on fire. "Perfectly fine logic," Grantham said, as the old radiators gurgled around him.

If Grantham's logic was so perfect, why didn't everyone see it? It's often said, on Wall Street, that the stock market's prices reflect all available information — an idea known as "efficient market theory." The idea has dominated the financial sector for half a century. If it really were luminously obvious that a carbon bubble was about to explode, the theory says that prices should reflect that — in other words, that Grantham had no edge and his thesis made no sense.

"They say everything's priced in," I ventured.

"Complete [expletive]," Grantham said. Then he embarked on a detailed explanation of why, summarizing John Maynard Keynes's theory of career risk — "that it is better for reputation to fail conventionally than to succeed unconventionally" — before returning to present-day Wall Street, where asset managers, impelled by short-term self-interest or outright denial, feared to stick their necks out on climate-related bets. Faced with such irrational behavior, efficient market theory seemed wobbly. "It's [expletive] because people are incompetent," Grantham continued, "it's [expletive] because —"

Around 10 a.m., his cellphone crackled to life, and a woman's voice said: "Jeremy, you have to get to your next meeting."

For a second, Grantham appeared almost mournful. He held my coat up for me to put my arms through. Then he dashed downstairs into the snow.

The future site of the solar farm that Lincoln is building for Exxon, the Permian Basin, is hilly and semiarid, with white caliche roads running toward the oil rigs and the nights punctured by the flames of natural-gas flares. Sometimes, when the wind picks up, the highways smell like sulfur. In recent years, the Permian became the most productive oil-and-gas field in the United States, as advancements in horizontal drilling and fracking technology made it possible to shatter the tightly packed shale. Exxon, Chevron and their peers can now access natural gas and oil that was previously unreachable, organic material that was deposited by surging oceans and subsiding land some 200 million years ago. If the Permian were a country, it would rank among the largest oil states in the world.

Every cliché about oil booms applies right now in the Permian: the 18-year-olds earning six figures driving trucks, the petrochemical Ph.D.s living in man-camps, the overtaxed public schools and doctors' offices. Unemployment in Midland, where Permian energy companies have their headquarters and where George W. Bush was raised, hovered this winter around 2.2 percent, the fourth-lowest metropolitan rate in the country. Yet the salient feature of the landscape is not the drilling infrastructure. For one thing, fracking takes place underground, in 10,000-foot tunnels, no more than eight inches in diameter and marked by only a single wellhead. For another, you can't keep your eyes off the wind turbines, which in certain counties seem studded in every acre of ranch land. Texas produces more wind power than every other state in the country, four times as much as the runner-up, California.

The Texas power grid inspires awe. Every five minutes, 24 hours a day, the Electric Reliability Council of Texas calculates the cheapest power being produced from every kind of generator in the state, then sends that electricity down the path of least resistance to its customers. From Ercot's perspective, it doesn't matter whether the cheapest power comes from a solar panel or coal, or whether the customer is a greenhouse or an oil rig.

Last April, Texas consumed about 25.7 million megawatts of power. Of that, 62 percent came from hydrocarbons and 27 percent from wind and solar. Electricity from all power sources feeds into the Ercot grid like tributaries into a river. Though Exxon's deal with Lincoln is one of the most visible examples of a fossil-fuel company using renewable energy, in reality all the Permian extraction outfits consume it, whether or not they intend to, simply because the grid is designed to serve it to them. In 2017, demand for electricity rose 8 percent in West Texas, compared with 1 percent for the state's grid as a whole. Warren Lasher, the senior director of system planning at Ercot, told me that most of that change comes from oil and gas.

Frosty Gilliam, an independent oilman in the Permian, greeted me at the reception desk of his office, on a sparse stretch of business highway in Odessa, Tex., and beckoned me into a conference room decorated in what he described as a "Tuscan feel," with marble, hand-troweled plaster and antique lamps. Sitting across from me at the darkly polished table, Gilliam was small and reticent, with glinting eyes and short white hair.

Gilliam grew up in West Texas and earned his degree at Texas A&M in petroleum engineering, graduating into the oil boom of the 1980s and easily finding a job at Amoco, the conglomerate that descended from John D. Rockefeller's Standard Oil. In the late '80s, as many small-time oil-and-gas entrepreneurs used to do in Texas, Gilliam started to build himself a business by scraping together mineral rights. His company, Aghorn Energy, now controls some 1,100 wells in the Permian, making him a relative lightweight.

[How is climate change affecting your area? We want to hear from you.]

The atmosphere in the office was convivial, and I hesitated to raise a question that would poison it, but after half an hour I asked how he thought about climate change. For 14 seconds, Gilliam stared at me across the table, the hint of a smirk on his mouth.

"Now you're setting me up for a bunch of hate mail," he said. Personally, he didn't believe climate change was an important issue. He said that when he saw data about rising sea levels or scorching temperatures, he suspected it was falsified or manipulated in order to further a political agenda. Gilliam knew that many of the big energy companies were investing in renewables, and he viewed their maneuvers skeptically. "The politically correct path is, 'We're going to increase our renewable energy production by 10 percent a year,' O.K.? But in reality, they make their business selling oil and gas, right?"

For the most part Gilliam spoke in the first person, stressing to me that he was delivering only his own opinions. Toward the end of our time together, though, he switched into a collective voice, to explain the reaction you'd arouse if you showed up in West Texas in a Tesla. "We wouldn't tar and feather you," he said. "We would just think, Well, he has his opinion, but our opinion is that there's not a problem."

The tension between the individual and the species, between Gilliam and the "we," runs through the heart of capitalism and always has. In economics, there is a theory called the Lauderdale Paradox, which the Scottish politician James Maitland articulated in the early 19th century. The theory says that capitalism undervalues public resources, like air and water and soil, because they are so plentiful, and overvalues whatever is private and scarce. A barrel of oil sells for $50 or $60, yet the emissions from that oil appear on no one's balance sheet.

When the paradox was first articulated, the mill industry of England was transitioning from water to coal, a long and contentious process. Coal allowed mill owners to site factories in cities, where wages were lower, and to run their machines at all hours. But water was cheaper, cleaner and more plentiful. In newspapers and private clubs, politicians and journalists fervently debated the merits of each fuel source, and England hovered for decades on the knife's edge between two possible futures, until — as the scholar Andreas Malm recounts in "Fossil Capital," a history of early industrialism — the more aggressive urban mill owners triumphed and the country switched to hydrocarbons. Seeing the whole problem like that, as a result of an economic arrangement rather than an unsparing fate or a flaw in human character, is exceedingly grim but also kind of optimistic. One system can dominate for a while, then another can sneak up and take its place.

At the far end of Gilliam's conference table, a surveyor's map lay open, its corners secured by brown leather document weights. The map depicted a mineral play in which Gilliam had an interest, containing perhaps a few hundred thousand barrels' worth of oil. PROVISIONAL & CONFIDENTIAL was stamped in red along the bottom. The map depicted the typical hydrocarbon infrastructure, like well locations and the large container drums known as tank batteries, shown as blue and yellow rectangles. But a checkerboard of gray lines had been drawn over these features, dividing the 3,700 acres into clean, even squares. I asked Gilliam what the squares were. "Solar farm," he said, casually.

Beware These Hidden Money-Pit Problems When You Buy a Home - Yahoo Finance

Posted: 22 May 2019 12:00 AM PDT

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Beware These Hidden Money-Pit Problems When You Buy a Home

Are you looking to buy a house? Maybe your very first home? Getting a fixer-upper can be a great way to save money -- but be sure you understand the hidden, potential problems that can quickly turn your home purchase from a good investment into an endless money drain.

Here are 20 hidden expenses that might be lurking in any home on the market.

1. Termites

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Tiny bugs can make their nests inside of the walls of a home, and if left unchecked, they can literally chew holes through wood.

These tiny bugs can make their nests inside the walls of a home, and if left unchecked they can chew holes through the wood holding up your house.

The cost of repairs depends on how far the critters travel and if the previous owner ever bothered to call an exterminator. A small area of damage can cost $2,000 to fix, but major structural damage can cost up to $20,000.

When you're touring a house, check for signs of infestation, and don't be afraid to invest in an annual termite inspection for any home you own. The cost is $75 to $100, which is a relatively small price to pay for getting ahead of much more serious damage.

2. Septic system

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If you're looking to buy a home in a rural area, it becomes the responsibility of the homeowner to buy and maintain their septic system.

In cities, your home will be connected to a sewer system maintained by your municipality and paid for though your taxes. However, if you're looking to buy a home in a rural area, it becomes the responsibility of the homeowner to buy and maintain a septic system.

And, you may one day be surprised with a notice from the Environmental Protection Agency that you are required to update your septic system in order to comply with environmental standards, even if the plumbing works just fine.

For a house with three bedrooms, it costs anywhere from $1,000 to $4,000 to install a new septic system.

EPA requirements vary by the municipality, and the laws governing one house may be different from another located just one block away. If you're buying in a rural area, be sure to do your research on the rules and the home's current type of septic system.

3. HVAC issues

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Many older homes don't have modern HVAC installed.

HVAC stands for "heating, ventilation and air conditioning." Obviously, you need a working HVAC system to stay warm in the winter and cool in the summer.

Some unwitting homebuyers wind up with a bad system requiring thousands of dollars in repairs — if they're not forced to install an entirely new system.

Many older homes don't have modern HVAC installed because they relied on oil-fuled boilers and window air conditioning units. For a 1,000 square-foot home, a new HVAC system will cost anywhere from $6,000 to $12,000.

Before buying a home, check how old the heating and cooling system is and inquire if there's a warranty. Be sure to pay for an inspection on the house before you close, and ask the inspector for an opinion on the shape of the system.

4. Trees that need removing

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When you're walking around your new property, keep an eye out for dead trees.

When you're walking around a property, look around for dead trees. They can cause major problems, especially if there are branches that might fall on your roof.

Even live trees can cause problems. If a tall tree were hit by lightning, could it fall on someone's house? You'd be open to a lawsuit potentially costing tens of thousands of dollars, and it may not be covered by your homeowner's insurance.

Hiring a professional to remove a tree costs anywhere from $150 all the way up to $1,500 for just one tree. Removal companies also charge extra for pulling out and grinding up the stump, and for cleaning up.

You can save a little bit of money if you're willing to do your own cleanup afterwards, but if you don't have a wood-burning stove or a fireplace, you are going to get stuck with a lot of wood you won't know what to do with.

5. Mold

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When you're walking around the house with a realtor, take a deep sniff.

When you're walking around a house with a Realtor, take a deep sniff. Go into the basement and attic, and take in a deep breath as well.

Does it smell musty? If so, it may mean the house had a leak or some kind of water damage that caused mold to grow inside of the walls, where you can't see it. Living in a house with mold can cause serious health problems, specifically asthma and allergies.

Sometimes, mold is isolated to a small area (like a leaky pipe underneath the sink), and it's easy enough to clean it with bleach or replace one cabinet for a couple hundred dollars.

However, if the mold is so bad that it is inside the walls throughout the house, removing it all can cost up to $30,000.

6. Foundation trouble

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There are several different types of foundation problems.

There are several different types of foundation problems. Some of these issues are easy to fix for $500 to $2,000, but others become more complicated and can cost upwards of $11,000.

You can check for issues on your own by looking for doors that don't close properly, cracked drywall, cracks in the basement walls, floors that seem to slope, or gaps between the walls and ceilings.

On the bright side, these sorts of things might help you negotiate the price of a home down, and you could get lucky and pay less for the foundation repairs than the discount you get on the sale.

However, it's best to bring in an inspector to give a professional opinion.

7. Water damage

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Water damage doesn't just cause mold. It can also pour onto electrical wiring, rot the floors, and make huge holes in your ceiling.

Water damage can cause mold, damage the electrical wiring, rot the floors and make huge holes in your ceiling, if the leak is coming from the roof. Look for water damage spots on the ceilings of each and every room.

Check if rooms smell musty, and look for water damage on the floors as well. Sometimes the damage has been repaired, but other times, patching something up does not necessarily mean the problem was solved.

The cost of fixing the damage will vary dramatically depending on how handy you are at fixing things yourself, and the extent of the damage.

If it was caused by a flood from a hurricane, you might need to replace the insulation, floorboards and structural beams — which could cost $2,000 or more. Water damage can really make you pay big if pipes and wiring need replacing.

8. Bad wiring

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A lot can go wrong with a house's electrical wiring.

A lot can go wrong with a house's electrical wiring. If you buy an older historic home from the 1930s or earlier, it could still have knob-and-tube wiring, which has the potential to burst into flames.

Sometimes, wires are not grounded properly, which can cause electrocution.

A lot of people DIY with wiring, and you could find an absolute mess left from the previous owner. Other times, the wiring is simply old and needs to be replaced.

An electrician can fix smaller problems for under $1,000, but if you're buying a historic fixer-upper, rewiring an entire house can cost $8,000 to $15,000. You might find yourself needing to take out a home equity loan or line of credit.

9. Asbestos

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If you're buying a house that was built before the 1970's, there is a chance that the roof, siding, and floor tiles could contain a highly dangerous material called asbestos.

If you're buying a house that was built before the 1970s, there is a chance the roof, siding and floor tiles could contain a highly dangerous material called asbestos. You do not want to mess with this stuff!

It's relatively harmless when dormant, but once any material containing asbestos is disturbed, microscopic fibers will break away and float through the air. If you breathe in just one fiber, it can stick to your lungs and put you at risk of a kind of cancer called mesothelioma.

Having an inspector identify if your house contains asbestos can cost $400 to $800, says HouseLogic. If there's a lot of the nasty stuff, removing it can cost $20,000 to $30,000.

That doesn't even include the cost of replacing those materials. Asbestos can be in the exterior siding, roofing, flooring and even the walls.

10. Roof

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Having a good roof is extremely important to prevent water damage and insulate your house properly.

Having a good roof is extremely important to preventing water damage and insulating your house properly.

You can hire a roofing inspector, but you can check for clogged drain pipes, missing shingles, or any visible sagging on your own. Also, ask the previous owner or Realtor how old the roof is, because the typical lifespan is about 30 years.

If the roof is due to be replaced, that can cost $10,000 to $30,000. But the price can be much higher depending on the square footage of the roof and the quality of tiles you buy.

You could even get a fancy Tesla Solar Roof, which is supposed to be "cheaper" than a traditional roof — but that's only after tax incentives and the savings in electrical costs are applied down the road.

11. Pet damage

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Have you ever wondered why some landlords do not allow pets?

Animals can do some serious damage to a property amounting to thousands of dollars in repairs, and homeowners insurance usually won't cover it.

If previous pets urinated on the floors on a regular basis, new flooring and padding will cost roughly $500 to $1,000 per room.

However, in extreme cases, the urine will seep down to the subfloor, and the smell becomes part of the wood. There is no way to remove it unless the entire subfloor is replaced — at a cost of $4,000 to $6,000 per room, including the contractor and materials.

If you go on a house tour and get a whiff of dog or cat pee, you should probably run in the opposite direction.

12. A porch that needs repairing

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Dry rot and water damage can cause a porch to fall apart.

Having a front or back porch adds value to your property, because it gives everyone an outdoor living space. However, dry rot and water damage can cause a porch to fall apart.

Sometimes, it's possible to fix small patches of rotting wood for less than $100, but if the previous homeowner didn't keep up with maintenance, issues with a porch can be compounded over the years.

Fixing these problems is very important, especially if people are using the porch to walk in and out of your home. The last thing you would want is for someone to step through rotting wood and end up in the hospital with a broken ankle.

The national average for deck repair is $1,610, and the cost of an entire new deck can be as high as $25,600, says HomeAdvisor.

13. Flood elevation needs

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Houses in Houston suburb flooded from Hurricane Harvey 2017.

Buying a house near a river, lake, bays or ocean can be beautiful, and waterfront property is very valuable. However, major storms can destroy homes on coastlines and inland river floodplains.

Due to the growing number of destructive storms, states have passed laws mandating that houses near water be elevated.

Raising a foundation can cost up to $14,000, though the required height and the cost of the project depend on the location.

Keep in mind that if you buy a property that was already damaged in a flood, the home may not survive being lifted off its foundation. That would force you to tear down the existing house, and build a new, elevated one.

14. Plumbing problems

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There are so many different things that can go wrong with plumbing.

From broken pipes in your walls to tree roots growing in the sewers outside of your home, there are so many different things that can go wrong with plumbing, and they almost always require professional help.

Plumbers charge $45 to $150 an hour for their services, depending on how difficult the job is. On top of the labor cost, you may need to pay for new pipes, a water heater, water pump and more.

A sewer line repair can cost upwards of $5,000 when a complicated plumbing issue is involved.

15. Old siding

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The quality of the outside siding on your house is extremely important to keep out the elements.

The quality of the siding on a home is very important for keeping out the elements. Most modern houses have vinyl siding, because it's relatively cheap and easy to do a DIY installation compared to metal, wood, brick, stone or stucco.

Vinyl has a lifespan of 20 to 40 years. Key an eye out for chipped outdoor paint and signs of drooping. This means the siding will need to be fixed right away. New vinyl siding for an entire house costs roughly $12,000.

Instead of vinyl, you might choose wood siding, but it needs to be treated every four to five years, which will cost $800 to $2,500. Stucco siding costs $16,000 to $30,000, and stone costs $50,000 to $80,000 but will last 50 to 100 years.

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16. Fire damage

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If you walk into a room that smells like a campfire, and yet there's no fireplace to be seen, that's a huge red flag.

For ambitious investors looking for a fixer-upper, a cheap, fire-damaged home might be very tempting.

But keep in mind that smoke may have seeped into the wood beneath the drywall. If you walk into a room that smells like a campfire yet there's no fireplace to be seen, that's a huge red flag.

The entire room may need to be rebuilt in order to remove the smoke smell and ensure that the wood beneath the walls it is structurally sound.

Fire and smoke damage repairs cost anywhere from $3,149 - $26,303, according to HomeAdvisor.

17. Sinkholes

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If left undetected, you could lose your entire house.

Sinkholes are watery pits that form in the ground in areas where the earth is made mostly of porous sand and limestone. Sinkholes are absolutely terrifying, because they have the potential to swallow up your entire house without warning.

This hazard is most common in Florida, Texas, Missouri, Pennsylvania, Alabama, Kentucky and Tennessee.

If you buy a house and later discover cracks suggesting it's on top of a sinkhole, you can pay for a procedure called compaction grouting, in which concrete is injected into the void beneath your house.

This will cost anywhere from $200 to $9,000, but that doesn't cover the cost of repairing cracks, driveways and more. If a potential sinkhole is left undetected, you could lose your entire house.

18. Outdated windows

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The average cost of one double-paned window is around $150.

If you are buying an older home built before the 1960s, the windows will most likely be made of single-pane glass: one thin sheet of glass, which makes it very easy for thieves to break in. It also causes a draft during the winter, which will increase the cost of your heat bill.

The average cost of one double-paned window is around $150. That might not seem too bad, until you multiply by the number of windows in the entire house.

If you live in a coastal state and really want to go the extra mile to feel safe, you can buy hurricane-resistant windows and doors. But they can be incredibly expensive: $500 for just one window and over $1,000 for a hurricane-proof door.

19. 'Attractive nuisances'

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Something on your property that has the potential for neighborhood children to get hurt.

"Attractive nuisance" is a fancy term for something on a property that has the potential for neighborhood children to get hurt.

Swimming pools, playgrounds, machinery, stairs, wells and tunnels all qualify, and it is the property owner's responsibility to make sure kids can't access any of that stuff.

If children get hurt on your property because of an "attractive nuisance," you could find yourself responsible for their hospital bills. If a child dies, there is no price that will fix the guilt felt by both you and the parents.

Be hyper-vigilant about any potential dangers on your property. You may have to pay for a new fence, which can cost between $2,000 to $3,000, or buy a shed to hold garden machinery, and those cost $1,000 and up.

20. Terrible neighbors

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The value of your home has a lot to do with the quality of your neighborhood.

The value of your home has a lot to do with the quality of your neighborhood. Unfortunately you may pay full price for a house, but if the next-door neighbors let their property fall apart, that decreases the value of your home, too.

Bad neighbors can reduce a home's value by 5 to 10%, the National Association of Realtors says. And that can mean the loss of tens of thousands of dollars when you put your house on the market.

If you are unfamiliar with the area where you are house hunting, keep an eye out for broken-down cars, uncut grass, dogs tied to chains and a general lack of pride. And, do some research on crime and foreclosure rates.

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