Environmental Due Diligence – For Your Buyers

Most everyone today knows that environmental problems pose health risks. That’s why issues found inside the home, like mold and lead-based paint, are routinely evaluated during home inspections. But did you know that pollution that originates elsewhere in the neighborhood, such as an oil spill from a leaking underground storage tank, can travel through the soil, groundwater or air and impact nearby homes as well?

Unsuspecting residents who live in close proximity to a polluter can feel the effects of residual contamination both in their well-being and in their wallet. Although high-profile cases regularly make headlines, homebuyers rarely screen potential neighborhoods for environmental risks. This is a mistake. Recent statistics show 551,368 identified leaking underground storage tanks nationwide, and more than 1,000,000 specific locations at which discharges of hazardous substances have been reported.

As a real estate agent competing in the current do-it-yourself Internet culture, you know that successful agents differentiate themselves by becoming a trusted resource on a variety of issues. Guiding buyers through a tailored due diligence process makes sense, and suggesting professional resources to help buyers screen for neighborhood environmental risks is one way you can help buyers make a sound investment.

HOW NEIGHBORHOOD POLLUTION AFFECTS HOMEOWNERS

Pollutants from current or former industrial activity, solvents from dry cleaning operations, oil from leaking underground storage tanks, and even chemicals from illegal drug manufacturing or “meth” houses can seep into soil and groundwater, where it can create unhealthy living conditions. Likewise, chemicals in the ground can travel through the soil as vapors and enter homes through foundation cracks and gaps around utility lines, negatively impacting indoor air quality.

Besides its negative impact on human health, contamination can drive down property values and stigmatize neighborhoods, especially if news of the pollution makes headlines. For obvious reasons, tainted properties are difficult, if not impossible, to sell. In extreme cases, homebuyers have even been held liable for cleanup costs, which can cost thousands of dollars.

LACK OF ROUTINE SCREENING

Commercial properties are routinely screened prior to purchase with a Phase I environmental site assessment. But there is no such provision in residential settings, and lender requirements for Phase I ESAs at home transactions don’t exist. “I sometimes see homes next to industrial properties and wonder who let that happen,” says Elizabeth Krol, an environmental professional with Shaw Environmental in Hopkinton, MA.

“And I once worked on an industrial property in New Jersey where a developer had built very expensive homes next to the site, just past the railroad tracks. The home owners later complained incessantly to the manufacturing facility regarding noise, odors and truck traffic. Didn’t they notice the train or the vent stacks
at the factory?” Understandably, the financial and emotional burden associated with residential contamination can be great.

Increasing pre-purchase environmental due diligence is a smart move, especially in a down market, when homes can become devalued. The effort pays off, because if a home is “clean,” the owner has peace of mind; and if it’s not, problems can be addressed up front. “Just looking at what’s in the neighborhood could save a lot of headaches down the road,” says Krol. “Buyers need to be aware of environmental issues at residential properties, and real estate agents can help drive that awareness.”

DUE DILIGENCE

In the case of potential environmental contamination, due diligence is key. A pre-purchase neighborhood environmental screen reduces the risk that an unsuspecting buyer will hold devalued property caused by previously unknown environmental concerns. While homeowners who discover pollution after the deal closes have little or no recourse, those who do so early in the deal have several options at their disposal.

For example, they can use the environmental issue as a bargaining tool to negotiate a lower price, evaluate available alternatives that would mitigate the impact of the pollution, such as connecting to a municipal water supply or installing a vapor intrusion mitigation system, or drop the home from consideration altogether. To protect themselves, potential homebuyers and their real estate agents should consider the potential for contamination when a home is located:

• On or near an existing or former industrial area;
• On or near a brownfield area;
• Near an existing gas station;
• Near an existing dry cleaner;
• On or near a well-developed, commercial main street, where there may have been former gas stations on the corners or former dry cleaners in nearby shopping centers;
• On a historic urban fill area — cities across the country, from New York and Boston to Los Angeles and Portland, have areas that were filled in with material containing naphthalene and polycyclic aromatic hydrocarbons, both known pollutants; and
• On or near a contaminated plume from a known release.

You can get a general feel for potential environmental problems by driving around the neighborhood looking for the presence of current or abandoned gas stations, dry cleaners, industries and the like, and noting their proximity to the home. Another way to determine whether environmental problems may impact the neighborhood is by calling the appropriate state agency, such as the Department of Environmental Protection, to ask about known problems in the area.

For example, if there is a sizable contaminant plume, that information is likely a matter of public record. Make the contact information for such local agencies available for your buyers, but let them do the investigating. Never assume responsibility for evaluating whether environmental conditions may be a problem.


Advise your buyers when you see warning signals, but let the decision as to whether
to test or how to test up to your buyers.You don’t need to take on that liability. For homes in newer developments, buyers can check with the developer, who should have performed environmental due diligence before acquiring and developing the property and will be able to provide relevant information.


PURCHASE AN ENVIRONMENTAL REPORT

Alternately, homebuyers can purchase a neighborhood environmental report — a quick and simple screen of reported environmental contamination within a specific radius around the home. These reports, which can be ordered through most home inspectors,
identify known environmental concerns such as leaking gas station tanks, landfills,
hazardous waste sites and other environmental problems that have been reported to federal, state, local or tribal agencies.

The reports are inexpensive (typically less than $100), can be prepared within a day or two, and are easily understandable by a layperson. Best ordered around the time of the home inspection to ensure that information is current and problems can be sufficiently addressed before purchase, the report should, at a minimum, contain a search of the following databases:

• Federal Superfund sites
• Proposed Superfund sites
• Leaking underground storage tanks
• Hazardous waste sites
• Landfills
• Illegal drug labs.

If the state Department of Environmental Protection (or its equivalent), the neighborhood environmental report or a drive-by investigation indicates that there might be contamination in the area, it’s a good idea to contact an environmental professional, who can help interpret the likelihood of an environmental condition at the home.

CONSUMERS WANT TO KNOW

Today’s homebuyer is more aware than ever of environmental issues and the problems they can pose to human health. Consumers pay more to eat organic foods, drive energy-efficient cars and otherwise live a “green” life, even in a slowing economy. It makes sense that they’ll want their home to be as safe as possible, too. As a real estate agent, you can offer added value by being able to offer some suggestions about available screening resources.

But be careful not to become part of the decision-making process. It is up to your buyer to have the testing done and to interpret the results. You need to stay out of the liability loop. Recommend testing. Provide lists of resources. But don’t get involved in deciding whether or not to have the property screened. That is totally up to the buyer.

If you suspect environmental problems and recommend testing and the buyer decides against it, it would be good to have your recommendations in writing and have the buyer sign a statement acknowledging them. That may cause the buyer to back away from the property. But that’s better than having the buyer push the sale through and then complain later that no one told them about the problem.