Buying a home is often the single largest investment a family will make, and homebuyers are increasingly considering environmental hazards that may exist on or near a property as an important factor in the final purchasing decision. Real estate professionals, particularly in California, are also recognizing the importance of thorough disclosure of environmental concerns in residential real estate transactions as a prudent and responsible practice for themselves and their clients.
Consider the case of the Long Beach, CA, resident who discovered that the soil in the backyard of his newly bought home was contaminated with petrochemicals from an underground tank buried near the garage. Neither a title search nor a home inspection uncovered the tank, yet the owner is unable to erect a new garage unless he fixes the problem, which he discovered after the sale, and for which he is now legally responsible. Estimated cost: $34,000 to $525,000 worse-case. To make matters worse, now that he knows of the contamination, by law, he must disclose the issue to future buyers, which will almost definitely affect the resale value of his home.
Or the Montebello, CA, resident who moved into an area near a landfill that later was listed on Superfund -- the EPA's list of the most polluted sites in the country. Around 180 million gallons of toxic waste had been illegally dumped into the landfill, which was polluted with, among other substances, vinyl chloride, a known carcinogen. Area residents were unable to open their windows and suffered headaches due to noxious odors. And many couldn't move: after news of the problem spread, property values plummeted.
These stories have become all too common. While contaminants found in the home, such as lead-based paint, mold, asbestos and radon, pose known health risks and are routinely disclosed or evaluated by home inspectors, pollution outside the home, such as groundwater and soil contamination, are just as important and should also be identified and reported. Both real estate professionals and home buyers alike feel that it is time to add routine environmental screening to the residential real estate process.
In a recent Harris Interactive national survey of people planning on or having recently purchased a home, 67 percent of respondents stated that the possible presence of polluted or toxic sites in the neighborhood would have a major impact on their purchasing decision.
This environmental factor proved to be more influential in a final purchasing decision than almost all other factors polled, including size of property lot, size of community, school system rankings and even property tax rate. Moreover, when asked who home buyers would consult for more environmental information, real estate agents and brokers were at the top of the list, polling only second to home inspectors.
According to another survey conducted at the National Association of Realtors' (NAR) Expo, ninety-six percent of agents and brokers surveyed also believe that local environmental hazards that could impact a property should be both researched and disclosed during residential real estate transactions.
Bottom line: Home buyers across the country overwhelmingly want to have access to environmental hazard information pertaining to the property they are going to buy, and often times they expect to get this information from their real estate agent.
Until recently however, information about the location of environmental hazards could only be obtained via the complex and time-consuming process of manually searching records maintained by various local, state and federal government agencies.
In California and a few other states a new option has emerged in the form of environmental disclosure reports. These reports, available from a variety of disclosure report providers, compile information from federal, state and local government databases to condense all information about relevant environmental hazards into one source. Hazards covered in the reports often include information about nearby leaking underground tanks, Superfund sites, hazardous waste sites, landfills, and even potentially contaminated schools in the area.
It's important for real estate professionals to consider environmental hazards, not only from the perspective of client demand, but from a liability standpoint as well. Many lawsuits filed against real estate agents and brokers allege failure to disclose material property defects, and such defects can include environmental hazards. Not only do sellers and their agents have an obligation to disclose known hazards on a property, but environmental disclosure reports also identify some issues that could be considered common knowledge as they are based on databases of recorded environmental hazards. Overall, these reports provide protection for buyers, sellers and agents by enabling them to rely on an expert third party for important environmental information.
According to Larry Schnapf, Esq., adjunct professor of environmental law at the New York Law School and author of Environmental Liability: Managing Environmental Risk in Corporate and Real Estate Transactions and Brownfield Redevelopment, environmental disclosure reports are a logical choice for all parties involved in a residential real estate transaction. Schnapf points out that "often times, it is the uncertainty about potential environmental issues and not the actual conditions themselves that can complicate transactions. Providing fact-based information about environmental conditions to buyers can ease their concerns, reduce disputes and allow the deal to proceed to closing in a timely manner."
Indeed, because of liability concerns and client expectations, many California real estate professionals have begun voluntarily providing environmental disclosure reports as a way to protect themselves and their clients. In fact, some areas in California have seen so many agents adopt the practice of providing environmental disclosure reports, that it has become an accepted standard of care. California is an early adopter of environmental disclosure reports likely due to the fact that the state already requires the disclosure of natural hazard zones such as earthquake, flood and fire for residential real estate transactions.
The use of environmental disclosure reports is increasing to the point where it seems likely to become a mainstream, standard practice in residential real estate transactions in the near future. Not only are the risks and liability for the buyer and seller too significant to ignore, but, on the positive side, disclosing this information can help instill confidence and assurance in a buyer's decision. Ultimately, environmental hazard reports help real estate professionals give buyers the confidence they need to make a sound and wise investment.