Would You Spend $50 to Save $500,000?

For one 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, a $50 environmental hazard report would have saved him about that much money. 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.
Interestingly, it was the process of pulling a permit that led to his knowledge of the existing problem. Estimated cost to remedy the problem: $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.

There are many other examples in California where buyers purchased property only to later find out there were very expensive environmental hazards that existed there.

Environmental hazards are generally thought to be created by humans rather than occurring naturally. We all know that gas stations and dry cleaners create contaminants that can contaminate property. In fact Environmental hazards can have much more negative impact to the value to a property than a natural hazard.

Why do many cities in the Silicon Valley include an environmental hazard report in their real estate transactions when the rest of California doesn’t? This link takes you to the contract form provided by the PRDS which produces the form for the Silicon Valley Association of Realtors and the San Mateo Association of Realtors.

Section 11 of this contract indicates an Environmental Report should be provided for residential purchases in these areas. This is similar to C.L.U.E. in that there is no statutory requirement for doing this, but it has become common practice because of its inclusion in the contract.

For some buyers, considering environmental hazards that may exist on or near a property can be an important factor in their 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.

In California environmental disclosure reports are available from a variety of disclosure report providers, which 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.

We all know that 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.

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.

Do you think agents should recommend buyers purchase and environmental hazards report? We’d like to hear from you!