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Environmental Disclosures in Real Estate

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

Although state laws vary, there are common environmental disclosures that sellers and agents must provide to buyers. In this lesson, we will look at some of these common disclosures along with how and when the buyer receives the information.

Environmental Disclosures

Jonas is getting ready to sell his house with the aid of his realtor. State laws, as well as good business practices, require Jonas to disclose certain information about the property. Disclosure is the process of informing a potential buyer about the possibility or the existence of a specific concern. The exact conditions that must be disclosed, along with the manner of presentation, are up to state and local governments.

An environmental disclosure covers a concern that is naturally occurring as opposed to a construction or social factor. While the federal government requires disclosures in certain cases for the presence of lead paint, other environmental concerns fall under state and local guidelines.

Let's take a look at some of the environmental issues that might affect a property, along with how the seller and agent pass along this information to the buyer.

Mold

Mold, a type of fungus, is a common concern when buying a property. Mold exposure in humans can cause or contribute to a number of respiratory illnesses. It can also permanently damage building material, paint, and fabric in extreme cases.

In his disclosure paperwork, Jonas generally must disclose any existing cases of mold. It's also sometimes necessary, or at least a good idea, to alert the buyer to any previous mold growth sites along with records of the mold remediation or repairs.

Radon

Radon is a colorless, odorless radioactive gas that naturally rises out of the ground in varying amounts. Under certain conditions, radon can enter into a building through the earth and concentrate inside. In high concentrations, radon has been linked to an increased risk of lung cancer.

In states that require radon disclosure, Jonas may need to inform the buyer of the prevalence of radon in the area along with health risks. If radon remediation has been performed in the past, specific information might be delivered to the buyer. The disclosure may give the buyer an opportunity to test radon levels in the home. The costs of remediation might become a point of negotiation in the home purchase.

Protected Species

Some states create lists of protected species that are in danger of reduced populations and possible extinction. What if Jonas' property is home to a legally protected plant or animal species?

Some states have restrictions on what can be done with these properties. For example, a buyer might not be able to disturb the habitat of a specific type of bird or even pick a certain type of flower. The buyer isn't even able to remove or kill these species if they interfere with other plans for use of the property. The restrictions with the property may reduce property values relative to similar properties without the protected species. A disclosure statement would make the buyer aware of the specific species covered under these laws that are located on the property.

Flood Zones

Although lenders and agents may verify whether or not a property is in a flood zone, some states require the seller to disclose that fact. Flood zones are areas known to be at high risk for flooding. Aside from the damage potential, flood zone locations require a buyer to obtain additional insurance coverage. Not only can the disclosure identify if the property is located in a mapped flood zone, it is a good idea to mention if the property has suffered damage from flooding--if not already required.

Disclosure Presentation

Generally the states require that disclosures be given to the buyer once the purchase offer has been accepted. Jonas' agent will most likely have standardized forms for each disclosure. These boilerplate forms contain box checks and blank lines for Jonas to fill in the specifics regarding each issue.

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